The number of properties across New Zealand resold at a profit has fallen slightly in the first quarter of 2022, according to CoreLogic.
The latest CoreLogic NZ Pain & Gain report found in the first three months of the year, 99.1 per cent of properties resold made a gross profit, or gain, down slightly from 99.3 per cent in the fourth quarter of 2021.
While the 0.2 per cent fall was marginal, CoreLogic NZ Chief Property Economist Kelvin Davidson warned the percentage of homeowners selling at a profit would likely continue to fall as the property market softened.
“While the figures have softened consistent with the wider market slowdown, the fall is only minor and it may be some time before we see more substantial declines in profit-making resales,” Mr Davidson said.
“There’s no doubt that these figures are still strong, both in the frequency and size of the gains.”
In dollar terms, the median resale profit also dipped slightly to $406,000, down from a record high of $435,000 in Q4 2021, but it was still the second-highest profit in the 26-year history of the data series.
Prior to the pandemic in 2020, the median resale gain was just $233,632.
Mr Davidson said it took time for people to sell their properties, which meant it was unlikely the figures would see dramatic drops in the short-term.
“Somebody who’s owned their property for seven to 10 years before selling will inevitably make a gross profit, even if market values have fallen a bit from their recent cyclical peak,” he said.
“With the exception of a dip in Q2 2020, which was probably distorted by our first big lockdown, you have to go back to Q2 and Q3 in 2019 to find a dip in the quarterly gain figures.
“For a more material and sustained drop in the percentage of resales making a gross profit you have to go back to 2010-11.”
Across the main centres, Auckland and Wellington saw the biggest falls in the portion of properties resold for a gross profit, while Christchurch (99.5 per cent) and Dunedin (99.7 per cent) had no change quarter-on-quarter.
In Hamilton and Tauranga, proft-making resales actually increased with all deals making a gross profit for the seller.
Mr Davidson said it was important to remember that for many owner-occupiers, the gains are not a cash windfall, as they will typically be ploughed back into their next property – potentially alongside a larger mortgage.
“Unless they’re downsizing or moving to a cheaper location, these resale gains are not typically cash windfalls and in most cases, any profit made from a resale will need to be injected straight back into a new property, with ‘trade-ups’ actually likely to involve higher debt levels in many cases, too,” he said.
Median hold period
Across New Zealand, properties resold for a gross profit in Q1 2022 had been owned for a median of 7.5 years, slightly up on Q4’s 7.2 years and consistent with the typical range of 7-7.5 years recorded over the past two years.
For loss-making resales, the median hold period was 1.8 years, down from 2.5 years in the previous quarter.
Mr Davidson said this was the shortest median hold period for loss-making resales since Q3 2008.
“Given that short hold periods tend to be associated with an unexpected change in circumstances, this highlights how in the recent strong market, it’s only been that handful of ‘stressed’ sales that have had to take a loss,” he said.
“As interest rates rise more property owners may be forced into a short-hold, loss-making resale.
“Certainly, there are likely to be some investors who have purchased in the last couple of years who may now be questioning their decision, as gross rental yields remain low, regulatory and mortgage costs rise, and capital gains evaporate (or even turn into paper losses).
“Some of these owners may be looking to consolidate/reduce debt levels, and potentially be willing to cut their sale price in order to do that.”
Out of the main centres, Christchurch had both the longest hold period for resale gains (9 years) and shortest hold period for resale losses (0.6 years).
Profit-making resales for houses have remained above 99 per cent since Q1 2021, and is now at 99.4 per cent, just down on Q4’s record high of 99.5 per cent.
Comparatively a decade ago, 80-85 per cent of house resales made a resale gain.
The share of apartments being resold for a gross profit fell more significantly, down more than three percentage points to 91.1 per cent, however, that shouldn’t be concerning according to Mr Davidson.
“At various stages in the past, we’ve sometimes had about 50 per cent of apartments resold for a gross loss (for example in 2008), and even as recently as 2019, the share was up in the 15-20 per cent range.”
The share of property resales made for a gross profit remained high for both owner-occupiers and investors in Q1 2022, however owner-occupiers did see a larger fall this quarter.
Owner occupiers share of resales made above the original purchase price dipped from 99.5 per cent in Q4 2021 to 99.2 per cent in Q1 2022, while investors proportion of resales was unchanged quarter-on-quarter, at 99.2 per cent.
Mr Davidson said the Pain & Gain figures were likely to continue to soften slowly.
“Given that most people have built big ‘paper’ gains over many years of ownership, it’ll take time for falling prices to have much effect on capital gains built up over several years of ownership,” he said.