Resale profits decline as buyer bargaining power gains momentum
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08/08/2024. 07:51
KoreaPost
By Kelvin Davidson, CoreLogic NZ Chief Property Economist
The New Zealand property market continues to shift in favour of buyers as the proportion of properties resold for a profit declined further in the second quarter.
CoreLogic NZ's latest Pain & Gain report shows the proportion of properties resold for more than the original purchase price in Q2 2024 was 92.1%, down from 92.9% in Q1 2024, marking the lowest figure since Q3 2015.
The median gain also reduced to $301,673 in Q2 from $315,000 in Q1, while the median resale loss edged up from $50,000 to $51,000.
CoreLogic NZ Chief Property Economist Kelvin Davidson said the shift in market conditions, driven by still-high mortgage rates, stretched affordability, and a surge in listings, highlights the growing influence of buyers in price negotiations.
"Although most property owners continue to make a gross profit at sale, the recent softening in the market has shifted the balance of power away from sellers and towards buyers to some degree," he said.
"The volume of listings on the market is already sitting at multi-year highs and is possibly set to rise further as some investors who are now Brightline Test-free bring forward their cashflow-negative properties for sale.
"Buyers, particularly those with job security and sufficient financial resources to manage mortgage repayments, could gain further leverage in price negotiations. That means the resale performance achieved by current property owners could remain subdued in the next few quarters."
"Buyers, particularly those with job security and sufficient financial resources to manage mortgage repayments, could gain further leverage in price negotiations. That means the resale performance achieved by current property owners could remain subdued in the next few quarters."
Hold periods
Hold periods remain a significant factor, with properties resold for a gain in Q2 2024 having a median hold period of 9.2 years, up from 8.9 years in Q1 and a significant lift from 7.1 years recorded in mid-2021.
Properties resold at a loss were owned for a median of only 2.7 years.
Mr Davidson said those who have owned their properties for the typical eight to nine years almost inevitably sell for a higher price than they originally paid.
"The slower housing market in the past couple of years has simply required some owners to hold for longer to achieve their goals," he said.
Properties resold at a loss were owned for a median of only 2.7 years.
Mr Davidson said those who have owned their properties for the typical eight to nine years almost inevitably sell for a higher price than they originally paid.
"The slower housing market in the past couple of years has simply required some owners to hold for longer to achieve their goals," he said.
"However, it's likely in other instances that longer hold period simply reflects weaker housing sentiment and greater caution, and a desire among property owners to 'ride out' the current soft patch before testing the market."
Apartment and investor losses on the rise
A gap emerged in the resale performance between investors and owner-occupiers in Q2 2024. Gross loss resales for owner occupiers increased from 6.6% in Q1 to 7.0% in Q2. For investors, the figure increased from 7.0% to 8.2%.
Apartment and investor losses on the rise
A gap emerged in the resale performance between investors and owner-occupiers in Q2 2024. Gross loss resales for owner occupiers increased from 6.6% in Q1 to 7.0% in Q2. For investors, the figure increased from 7.0% to 8.2%.
Mr Davidson said historically the gap between the two buyer types averages 1.3 percentage points, however the increased rate of investor losses recently correlated with market sentiment and the softer performance of apartments.
The share of apartment resales made for a gross loss has consistently been higher than for houses and the trend continued in Q2, with around 35% of apartment resales resulting in a loss. It marked the highest rate of losses for apartments since Q1 2012, when it reached 37.7%.
The share of apartment resales made for a gross loss has consistently been higher than for houses and the trend continued in Q2, with around 35% of apartment resales resulting in a loss. It marked the highest rate of losses for apartments since Q1 2012, when it reached 37.7%.
"Investors, driven by financial motives, tend to sell quickly for portfolio adjustments or buying opportunities, unlike the emotionally driven decisions of owner-occupiers," Mr Davidson said.
"Traditionally, a greater proportion of investors purchase higher-yielding apartments, which tend to have the highest loss-making rates compared to detached houses. It is relatively uncommon to make a gross loss on resale for detached houses."
"Traditionally, a greater proportion of investors purchase higher-yielding apartments, which tend to have the highest loss-making rates compared to detached houses. It is relatively uncommon to make a gross loss on resale for detached houses."
Despite this, Mr Davidson said apartment values remain relatively stable, with longer hold periods compared to houses.
"The rising frequency of resale losses for apartments may just represent a rebalancing of their owners' property portfolios, especially for investors," he said.
The median resale gain for investors was $315,826, slightly higher than the owner-occupiers' $297,500, with the median loss for both groups $50,000.
Auckland pain on the increase
Auckland pain on the increase
Of New Zealand's main centres, Auckland had the highest share of loss-making resales at 12.6%, up from 9.4% in Q1.
Mr Davidson said this increase was largely driven by a loss on apartment sales with Hamilton and Tauranga also recording increases in loss-making resales, rising to 9.7% and 8.8%, respectively.
Conversely, Wellington's loss-making share dropped to 6.7%, Dunedin remained flat at 5.2%, and Christchurch improved slightly to 4.3%.
Median resale profits exceeded the national gain and were highest in Tauranga ($404,750), Auckland ($392,000), and Wellington ($390,500), while the median resale profit in the two main South Island cities of Christchurch and Dunedin were below the national figure at $274,000 and $275,000 respectively.
Profit Outlook
Mr Davidson anticipates that profit and loss figures could continue to weaken in the second half of the year, particularly as national median home values have already declined five consecutive months, down 2.5% since February.
He says any cut to interest rates and stronger employment would have a positive impact on confidence and therefore values.
"The current soft patch for the wider property market may not last too long, as mortgage rates drop and also if we see the country's unemployment figures peak early next year as expected," he said.
"That said, the second half of 2024 could still prove challenging for the property market, given that the worst isn't over yet for the labour market. All eyes remain on the official cash rate and inflation with the Reserve Bank moving towards an easing stance. It only seems to be a matter of when – not if - the cash rate is cut in 2024."
To read the report, visit www.corelogic.co.nz/news-research/reports/pain-and-gain-report.
To read the report, visit www.corelogic.co.nz/news-research/reports/pain-and-gain-report.
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Source: CoreLogic