Record profits for NZ homeowners

Price growth in New Zealand might be slowing, but homeowners still have plenty to be happy about with the booming housing market leading to 99.3 per cent of properties being resold at a profit – a new record high level.

CoreLogic NZ’s latest Pain & Gain report found New Zealanders who chose to sell their homes made a median resale profit of $420,000 – a massive jump from the profits that were being achieved pre-Covid at $223,000 in the second quarter of 2020.

CoreLogic NZ Chief Property Economist Kelvin Davidson said the numbers highlight just how big the current property boom has been.

“Property resellers have been achieving record gross profits in recent quarters, thanks largely to selling in a market where demand has been stronger than supply – with owners who have held their property for longer also more likely to be recording larger gains,” Mr Davidson said.

“Across the 25-year history of this data series, never before have we seen such a high and sustained peak for profit-making resales.” 

“It doesn’t matter if you’re in a main centre or a small provincial district, an owner occupier or an investor, or whether you’re selling a house or apartment, resale gains are high across the board.”

Source: CoreLogic

Mr Davidson noted that despite the record profits homeowners are sitting on, many are using the funds to move into larger homes.

“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.”

Around New Zealand, all of the main centres saw a sharp increase in profit-making resales.

Tauranga recorded the highest proportion of properties resold for a gain at 99.8 per cent, slightly above Dunedin at 99.6 per cent, while Hamilton stayed steady at 99.5 per cent.

In terms of largest dollar profits, Wellington’s median resale profit remained the largest amongst the main centres at $593,000, ahead of Auckland at $585,000.

Christchurch recorded the largest rise in the proportion of profit making resales, up one percentage point from 98.4 per cent in Q3 2021 to 99.4 per cent, and also recorded the lowest median gross loss of the main centres at $3500, a touch below Wellington at $4000.

Source: CoreLogic

Mr Davidson noted Auckland and Christchurch had been the most interesting main centres in the past few years in terms of the pain and gain performance. 

“In 2019, each city ‘only’ had about 90 per cent of resales made above the original purchase price,” he said.

“But as property values themselves have accelerated again, these resale figures have also perked up – and although Auckland’s affordability has deteriorated again to concerning levels, Christchurch still has some appeal.

“Accordingly, it wouldn’t be a surprise to see the ‘gain’ figures stay higher for longer in Christchurch than some of the other main centres.”

Source: CoreLogic

Houses have once again been a standout performer in the current market, with a record 99.5 per cent, or a $420,000 resale profit.

The share of apartments being resold for a gross profit dipped slightly, down from 94.6 per cent in Q3 2021 to 93.8 per cent, or $195,435 in Q4. However, Mr Davidson said that’s still strong by historical standards. 

“Historically at various stages we have sometimes only seen about 50 per cent of apartments resold for a gross profit, such as in 2008, and even as recently as 2019 the share was down in the 80-85 per cent range,” he said.

Across New Zealand, properties resold for a gross profit in Q4 2021 had been owned for a median of 7.1 years.

Mr Davidson said most loss-making resales were due to ‘short holds’ last quarter.

Looking ahead, Mr Davidson said despite the property market moving past its peak and beginning to slow, resale gains will likely remain elevated for some time to come. 

“Even if property value growth slows sharply over the next three to six months as we think it will, the fact that most people have built up their gains over long hold periods means that the gross profits will still be large,” he said. 

“I wouldn’t be surprised if the gains were still high for Q1 2022’s figures, though by Q2’s numbers I’d expect to see some these record gains starting to wane.”

Upper North Island

For the final three months of 2021, Gisborne, Whangarei, and Rotorua all had at least 99 per cent of resales made for a gross profit, with resale profit as high as $410,000 in Rotorua.

Lower North Island

Some of the biggest gains in the country have been on the Lower North Island.

In New Plymouth, all (100 per cent) of resales in Q4 2021 were made above the original purchase price, while Hastings and Palmerston North saw figures in excess of 99.5 per cent.

The median gains were $497,500 in Hastings, and only a little lower in Napier ($479,000), with Palmerston North also topping $400,000.

New Plymouth and Whanganui were both in excess of $300,000.

South Island

All resellers made a gross profit in Q4 (as they also did in Q3), while the figures exceeded 99 per cent in both Nelson and Queenstown.

Queenstown’s median resale profit was $581,000 in Q4, with Nelson at $365,500, and Invercargill at $235,000.

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Rowan Crosby

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