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Profitable resales decline across New Zealand

Profitable resales across New Zealand continued to decline last quarter, dropping to 96.8 per cent according to CoreLogic.

The number of profit-making resales has fallen from the Covid-induced peak of 99.3 per cent in the fourth quarter of 2021, but is still higher than the pre-pandemic level of 96.3 per cent in early 2020.

CoreLogic NZ Chief Property Economist Kelvin Davidson said despite the decline in profit-making resales it’s important to look at the numbers over a long period of time.

“Through 2000 and 2001, it was common for the profit share to be as low as 75 per cent, and in the post-Global Financial Crisis period, that figure was often as low as 80 per cent,” Mr Davidson said.

“Clearly, the latest figures are still well above those marks.” 

In dollar terms, the median resale profit also remains high but dropped to $331,000 from the peak of $440,000 in the fourth quarter of 2021. 

The softer performance of property resales in the third quarter is evident across most parts of the country, as well as property type (house vs apartment) and owner type (owner occupier vs investor).

Properties resold for a gross profit in the third quarter had been owned for a median of 7.7 years, similar to the 7.6 years posted last quarter.

The median hold period for properties resold for a gross profit has held relatively steady, in the range of seven to eight years, since 2017.

For loss-making resales, the median hold period was just 1.3 years, which was virtually unchanged over the quarter, and on a par with a long trough seen over 2005-2007.

“Anybody who has held for the typical seven to eight-year period should still be sitting on large capital gains,” Mr Davidson said.

“Putting aside small quarterly shifts, the hold period for profit-making resales has held steady in a long run context, given that in mid-2001 the median hold period for profit was only about 6.5 years, and in 2005-2006 it was as low as four years.”

Profit-making resales for houses fell below 97.5 per cent, the lowest proportion since Q3 in 2020 but still well above the pre-Covid average. 

However, profit-making resales for apartments are steadily declining, from a peak of around 94-95 per cent in 2021 to 82.4 per cent in Q3, the lowest since Q1 in 2015. 

“The bulk of those loss-making apartment resales were in Auckland, which is unsurprising given Auckland has the most apartment stock. Wellington also had a handful of loss-making apartment resales in Q3 2022,” Mr Davidson said. 

“Again, however, context is important. 

“Even though the share of apartment resales being made below the original purchase price has risen, it’s not time to panic. 

“After all, at 17.6 per cent, the figure is still reasonably low by past standards.”

Owner-occupiers saw 97.0 per cent of resales make a gross profit, down from 98.6 per cent in the June quarter, while 97.1 per cent of investors made a gross profit in Q3, down from 97.6 per cent in the previous quarter. 

However, the median resale gain was larger for investors at $337,750, versus $324,000 for owner-occupiers.

Mr Davidson said it was important to note that for owner-occupiers these weren’t necessarily windfall gains. 

“After all, their next property will have gone up in value over time too, with their fresh equity just having to be recycled into that next purchase,” he said.

Auckland, Wellington, and Dunedin showed a bit of extra weakness, versus slightly steadier, albeit softening, conditions in Hamilton, Tauranga and Christchurch. 

Auckland’s share of profit-making resales reduced 2.6 per cent quarter-on-quarter to 94.2 per cent, the lowest figure since Q4 in 2019. Dunedin’s share also reduced by 2.1 per cent to 96.9 per cent. 

However, most resellers are still getting a price well above what they originally paid – ranging from a gross profit of more than $400,000 in Tauranga, Auckland, and Wellington, down to about $368,000 in Hamilton, and $300,000 or less in Dunedin and Christchurch.

Mr Davidson said as listings and interest rates have risen, mortgage credit has tightened, and property values themselves have dropped, the resale performance across the market has started to weaken more materially.

“While the impact of a downturn will never be immediate on resale performance, simply because of the critical role hold periods play, the impact is still there with gains becoming less common, and certainly the dollar value of those gains falling quite quickly,” he said.

“In past downswings, we have seen the profit-making share of resales dip as low as 75-80 per cent.

While it’s uncertain if we’ll get there again, historical data suggests that profit-making resales could fall as low as 90 per cent over the coming quarters, potentially even lower, particularly as existing borrowers reprice from previous low rates onto a much higher repayment schedule potentially forcing faster sales.”

Source: CoreLogic NZ

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.