More than 99 per cent of New Zealand vendors sold their property for more than the original purchase price in the three months to September, according to new data.
It’s a new record, pipping the previous peak of 99 per cent set in the quarter prior.
The results, revealed in CoreLogic’s NZ quarterly Pain & Gain report, are likely due to low levels of supply on the market, high demand, and attractive mortgage rates.
CoreLogic NZ Chief Property Economist Kelvin Davidson said in the 25-year history of the Pain & Gain data series, never before have more re-sellers (in proportional terms) made gross profits.
“It’s certainly been a ‘seller’s market’ in the past nine to 12 months, with the supply/demand balance tight and mortgage rates low,” Mr Davidson said.
“Anybody holding property for the typical seven to 10 years before selling will have had considerable capital gains prior to 2020-21 as well – making it almost inevitable that a resale will be at a higher price than previously paid.”
The report showed the scale of property value growth over the past 12 months was significant. The Q3 median resale gain was $363,000, up by $8000 from Q2’s figure of $355,000. In Q2 2020 that figure was $223,000.
By comparison, the median resale loss in Q3 2021 was $35,000, slightly higher than Q2’s ‘pain’ figure of $30,000.
Mr Davidson warned the pace of increase in those profits was starting to slow and as the wider property market cooled in 2022, on the back of mortgage rate rises and tighter lending regulation, so too would the ‘gain’ figures in future reports.
“It’s also important to note that for many owner-occupiers, a resale gain does not generally equate to a cash windfall, unless they’re downsizing or relocating,” he said.
“In most cases any equity needs to be recycled straight back into the next property purchase, with ‘trade ups’ more likely to involve higher debt levels in many cases too.”
Median hold period
Across New Zealand, properties resold for a gross profit in Q3 2021 had been owned for a median of 7.1 years – down slightly from 7.4 years in Q2 2021, but consistent with the figures recorded since early 2018, which have ranged between seven to 7.5 years.
For loss-making resales in the quarter, the median hold period was 3.9 years, which remains unchanged from the Q2 figure, but is higher than the trough of 2.6 years in Q4 2018.
It remains uncommon for houses – as opposed to flats or apartments – to make a gross loss at resale, the report showed.
Of the houses resold in Q3, 99.4 per cent achieved a price above the previous purchase price. In mid-2001 only 70-75 per cent of house resales made a gross profit, and in early 2011 the figure was 80-85 per cent.
The share of apartments being resold for a gross profit was 94 per cent, slightly down from Q2’s figure of 94.5 per cent. Generally, the share of apartment resales making a gross profit tended to be lower than houses., according to the report.
The Q3 apartment figure was still strong however, up on the 12 months prior, when less than 87 per cent of apartment resales made a gross profit.
Every main centre in Q3 2021 followed the national trend of strong property ‘gain’ and minimal ‘pain’, which is consistent with the nationwide upturn in property values in the past year.
Every property resold in Dunedin in the quarter recorded a price higher than what was previously paid, with no loss-making resales at all.
Other main centres recorded a profit-making share of 98.7 per cent or more, with 99 per cent of resales in Hamilton and Wellington making ‘gains’.
Christchurch, which has previously shown significantly weaker profit-making resales, turned a corner in Q3 with 98.7 per cent of properties resold doing so for a gross profit. It is the city’s strongest resale figure since Q2 2007.
The most notable gains were made in Wellington, where median resale profits reached a record high of $555,000 in Q3 2021.
Auckland had a median resale profit of $505,000, slightly up from the previous quarter’s figure of $500,000.
The size of gains in Tauranga and Dunedin flattened off in the quarter, but Hamilton and Christchurch saw continued growth, although the latter’s median gross profit of $256,000 remains well below the other main centres.
The bulk of the provincial markets had no loss-making property resales at all in Q3 2021, only seeing one or two isolated cases.
Mr Davidson said this reflected the property market’s broad-based upswing and common drivers such as a tight supply/demand balance and low mortgage rates.