pain and gain report · 2019. 11. 21. · for ‘gain’, and 4.1 years for ‘pain’. wellington...

Pain and Gain Report New Zealand Released November 2019, data as at Quarter 3, 2019

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Table of Contents CoreLogic solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

National overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Median Hold Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Property Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Main Centres . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Type of owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Main urban areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Upper North Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Lower North Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

South Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Outside the main urban areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

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Legal disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

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Executive Summary

The Pain and Gain report is an analysis of homes which were resold over the previous quarter (excluding leasehold). It compares the most recent sale price to the home’s previous sale price, determining whether the property resold at a gross profit or gross loss. It provides a proxy for the performance of the housing market and highlights the magnitude of profit or loss the typical seller of a home makes in those regions analysed. Key findings from this Pain and Gain Report (for resales between 1 July 2019 and 30 September 2019) include:

The frequency of gross profits (sale price above original purchase price) at resale – or ‘gain’ – remains high. More than 95% of resales across the country made a gain in the three months to September, unchanged from Q2.

Generally the Q3 results were pretty similar to Q2 for each of the main centres, although there were points of interest in Auckland (‘gains’ still common but less so than at any point in seven years), Christchurch (hints of a turning point and rising gains/falling pain), and Dunedin (every resale in Q3 made a profit).

But even in areas where the frequency of loss-making resales has crept up (e.g. Auckland), the scale of losses is hardly overwhelming, especially when viewed in the context of previous large gains. Nationally, the median resale loss in Q3 was $20,050 (Auckland $35,500), swamped by the gains of $197,000 (Auckland $320,000). Dunedin’s median profits have now climbed to $196,000.

By owner type, investors have historically tended to sell for a profit a little less frequently than owner-occupiers. However, the third quarter saw that gap close to zero – both owner types sold for a gross profit on 95.5% of properties (or in other words they sold for a loss on 4.5% of properties).

By property type, apartments softened a little in the third quarter, with the share of resales for a profit easing down from 83.3% in Q2 to 82.5%. By contrast, more than 95% of house resales saw a gross profit in Q3, pretty much the same as Q2’s figure.

Around ‘provincial’ New Zealand, the continued growth in property values means that almost all resellers are getting a price higher than what they originally paid, and the scale of those profits per property are ticking higher.

Overall, there were no surprises in Q3’s data – ‘gain’ is high and ‘pain’ low. Of course, these profits aren’t typically a cash windfall (except for a downsizer or other owner-occupier going renting, or an investor reducing their portfolio); instead they’re reinvested into the next property .

National overview

Across New Zealand as a whole, the proportion of properties being resold for more than the original purchase price (i.e. a gross profit, or “gain”) in Q3 2019 was 95.4%. That was pretty much unchanged from Q2’s figure (95.3%), and still a high number historically – over the last 20 to 25 years, the proportion of resales made for a gross profit has averaged about 90%.

The high proportion of properties being resold for a gain in the third quarter of 2019 continues the strong trends of the past few years, and reflects the fact that property prices have risen significantly over the long run, almost guaranteeing a gross profit for anybody who has owned for the typical 5-7 years.

The flipside is that 4.6% of resales in the third quarter were made below the original purchase price (also of course pretty much the same as Q2’s figure, of 4.7%). Almost all of those loss-making resales had not previously had a consented renovation, so in some cases may have been in less than pristine condition. Put another way, a renovation makes a gross loss very uncommon – only 0.25% of resales in Q3 were renovated properties sold below the original purchase price.

Not only is it very common to make a gross profit at resale, but the actual profits made are strong too. Nationally the median resale profit in Q3 2019 was $197,000, the fourth highest figure on record – only surpassed between Q4 2018 and Q2 2019, when the figures ranged from $198,000 to $203,000.

That said, because of the relatively subdued level of activity in the market (i.e. the restrained number of resales), total profits have also been dampened. Indeed, although Q3’s figure of $3.1bn is high by historical standards, it’s still quite a bit lower than the peak of $5.2bn in mid-2016 (when sales activity across the market was buoyant).

Turning to the other side of the coin, the median gross loss at resale in Q3 2019 was just $20,050, a slight improvement on Q2’s figure of $23,000. This helped total losses to dip from $45.6m in Q2 to just $30.3m in Q3.

Overall, with property values having risen substantially across the country over the past 5-10 years, it’s not surprising that most resellers can lock in a price well above what they originally paid (especially if the property has had a renovation). However, unless the seller is downsizing for example or leaving the market (either going renting or leaving the landlord sector), these ‘profits’ will typically just go straight back into the next purchase.

Proportion of total resales at a loss Q2 2019 4.7%

Q3 2019 4.6%

5%

1997 2002 2007 2012 2017

10%

15%

20%

25%

Median gross profit/loss Gross profit/loss on resale

Pain -$20,050 -$30,253,431

Gain $197,000 $3,144,362,237

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Median Hold PeriodAcross New Zealand as a whole, properties resold for a gross profit in the three months to September 2019 had been owned for a median of 7.6 years – in line with the results of 2018 and 2019 to date, but slightly shorter hold periods (for profit) than were seen in 2015-16, often closer to 8.5 years. That said, recent hold periods have been much longer than troughs of only about four years in the mid-1990s and mid-2000s.

For loss-making resales in the three months to September, the median hold period was shorter, at 3.0 years. That was up from 2.8 years in the June quarter, but still a comparatively short hold period compared to the past (e.g. in 2016, the median hold period for resales at a gross loss was about eight years) .

Short hold periods for these loss-making resales indicate that the owners are willing to ‘cut and run’ in the current market with subdued levels of activity and slowing capital gains, rather than clinging on and potentially being stuck with a rental that earns less than its costs, or a home that doesn’t suit the owner’s needs.

Hold periods are longer where a property has been renovated, regardless of whether or not a gross profit is made at resale. For example,

properties that had previously had a consented renovation and that were sold above the original purchase price in Q3 2019 had been owned for a median of 12.0 years, versus the figure for their non-renovated counterparts of 7 .0 years . For the loss-makers, renovated properties had been held for a median of 4.2 years, versus non-renovated at 3 .0 years .

The fact that renovated properties are held for longer than others is consistent with the idea that the building work allows the home to be more suitable for its current owners’ needs for longer – or for an investor, a longer hold period could be required to recoup the costs. The short hold period for non-renovated loss-makers (3.0 years) hints that the owners may have been looking for ‘easy’ capital gain, but decided to exit quickly if that gain didn’t eventuate.

At a regional level, median hold periods for resale gains are generally above resale losses, with Christchurch having fairly lengthy hold periods on both sides of the coin – 10.9 years for ‘gain’, and 4.1 years for ‘pain’. Wellington also has relatively long hold periods, but the figures for Hamilton and Tauranga (amongst the main centres) are much shorter.

Pain Gain

New Zealand 3.0 7.6

Auckland 2.8 7.5

Hamilton 2.0 6.4

Tauranga 2.7 6.5

Wellington 10.9 9.4

Rest of NI 2.0 7.2

Christchurch 4.1 10.9

Dunedin - 7.1

Rest of SI 4.0 7.1

Property Types

That said, it’s important to note that although resale losses are getting more common for apartments, the scale of those losses isn’t especially large. Indeed, the median resale loss for an apartment in Q3 2019 was $20,000 – exactly the same as the figure for houses.

Pain Gain

Median gross profit/loss

Gross profit/loss on resale



Apartments -$20,000 -$2,858,600 $157,500 $73,140,298

Houses -$20,000 -$24,521,304 $195,000 $2,836,827,855

Q2 2019 4.3%

Q3 2019 4.2%

Q2 2019 16.7%

Q3 2019 17.5%

Proportion of total resales at a loss

HOUSES APARTMENTS And then when it comes to resale profits on apartments, the figures are also still pretty strong. In the third quarter of 2019, the median figure was $157,500 – lower than $195,000 for houses, but still an impressive result.

0%

1997 2002 2007 2012 2017

Apartments

10%

20%

30%

40%

50%Houses

For houses, it remains very uncommon to make a gross loss at resale. Indeed, in the three months to September, only 4.2% of resales were made below the original purchase price (and even fewer for properties that had been renovated), a continuation of the low levels seen for the past 2-3 years . The share of house resales for a gross loss hasn’t been above 5% since the second quarter of 2016. Put another way, the share of house resales for a profit hasn’t been below 95% for more than three years now .

By contrast, there are greater signs of ‘market fatigue’ in the apartment segment, with sellers seemingly more open to the idea of changing tack in a subdued market. For the

three months to September, 17.5% of apartment resales were made below the original purchase price, up from 16.7% in the previous quarter, and the highest figure since the first three months of 2015 (18.6%).

To be fair, the proportion of apartment resales made for a gross loss is still far below Q4 2008’s peak of 52.9%. But the trend is nevertheless upwards and is likely to reflect the fact that the typical apartment buyer’s approach is more financially-minded (e.g. a first home buyer simply wanting the starter property before moving on, or an investor) and they’re prepared to sell quickly when conditions change .

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Main CentresGenerally speaking, the trends for pain and gain around the main centres of New Zealand didn’t change much from Q2 2019 to Q3. For example, the shares of resales made for a gross profit in Hamilton and Tauranga were relatively stable (at more than 98% and 97% respectively), while still about 99% of resales in Wellington are seeing ‘gain’, or a sale price above what was originally paid by the owners.

That said, there were developments of note in Auckland, Christchurch, and Dunedin. Starting with Auckland, and reflecting the still subdued nature of the market there (albeit now with some hints of a turning point), the share of resales made for a gross profit dipped again in the third quarter of 2019, from 91.4% in Q2 to 90.9%. In 2015-16, those figures were consistently about 99%, and in fact the latest reading is the lowest in exactly seven years, i.e. since Q3 2012.

By contrast, Christchurch has just started to a look a little more encouraging. In Q3, 90.2% of resales were above the original purchase price, a touch better than the figure of 89.7% in Q2, and a continuation of the gradual improvement since mid-2018. True, these figures are still disappointing compared to many other parts of the country, but at least the direction of change has shifted.

And then in Dunedin, the pain & gain data just confirm how outright strong the market is. Indeed, in the third quarter of the year, every resale in the city was made above the original purchase price – i.e. no ‘pain’ felt by any reseller .

Q3 2019 Q2 2019

Auckland 9 .1% 8 .6%

Hamilton City 1 .5% 1 .9%

Tauranga City 3 .0% 3 .1%

Wellington 1 .3% 0 .6%

Christchurch City 9 .8% 10 .3%

Dunedin City - 1 .1%


10%

20%

30%

40%

1997 2002 2007 2012 2017

AucklandHamilton CityTauranga CityWellington

Generally speaking, regardless of whether the frequency of ‘pain’ is rising or falling around the main centres, the scale of those losses when they occur remains relatively small. In Hamilton, the median loss at resale in Q3 was just $3,000, and it was about $15,000 in both Wellington and Christchurch. Tauranga ($30,000) and Auckland ($35,500) saw slightly bigger median losses, but values in those two cities are starting from high levels anyway.

At the same time, profits remain strong. Resellers in Christchurch saw a median gain of $125,000 in the three months to September, with Dunedin at $196,000 – four years ago, Dunedin’s figure was just $62,000 (illustrating the significant growth in values that has occurred since 2015). Resale profits in Hamilton, Tauranga, and Wellington were all in the $200,000’s, while Auckland remains the highest, at $320,000. For context though, Auckland’s median gain back in Q4 2016 was $408,000.


Pain Gain





Auckland -$35,500 -$20,453,856 $320,000 $1,132,877,094

Hamilton City -$3,000 -$598,500 $221,000 $110,438,956

Tauranga City -$30,000 -$968,688 $252,000 $117,856,567

Wellington -$15,000 -$724,250 $285,000 $326,868,639

Christchurch City -$15,500 -$3,097,483 $125,000 $176,327,965

Dunedin City - - $196,000 $87,450,631

10%

20%

30%

40%

1997 2002 2007 2012 2017

Christchurch CityDunedin City

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Type of owner

Profit-making resales remained high for both investors and owner-occupiers in the third quarter of 2019, while the gap that there’s traditionally been between the two owner types also closed right up .

For owner-occupiers, 95.5% of resales in the three months to September were made above the original purchase price, down a touch from the figure of 95.8% three months ago – but still a strong result. And for investors, the figure actually rose from 94.6% in Q2 to 95.5% in Q3, the same as for owner-occupiers. Regardless of owner type, the frequency of resale profits is high in an historical context – e.g. back in 2011, only around 80% of resales were made above the original purchase price .

Meanwhile, as is typically the case (whether you look through time, or property type, or location), a renovation is associated with a greater likelihood of achieving a gross profit at resale, whether the owner is an investor or occupies the property .

The closing of the gap between owner types in the third quarter is interesting, given that the property type gap (apartments vs houses) actually widened a little over the same time period. One explanation for this could be that some owner-occupiers selling apartments fared worse than the wider sector in terms of their resale price.

Once again, there is little evidence in this set of Pain & Gain data that investors are exiting the sector en masse due for example to the changes already made to the rules around being a landlord (e.g. extra insulation, tax ring-fencing). It remains to be seen what the latest proposals – which may potentially remove ‘no cause’ terminations of leases and only being able to change the rent once a year – might do to investors’ appetite. But we doubt that any further changes would seriously affect the stock of rental property – after all, any landlords who exit the sector may just end up selling to another investor .

Around the main centres, generally an investor is more likely to sell for a resale loss than an owner-occupier, but the differences aren’t huge.


5%

10%

20%

15%

2009 2011 2013 2015 2017 2019

InvestorOwner Occupier

In Auckland, for example, the opposite applied, with 9.6% of

owner occupiers experiencing ‘pain’, but only 8.0% of investors

In Wellington in the third quarter, 0.9% of owner-occupiers sold for a gross loss, and only 1.7% of investors

Turning to the actual profits/losses themselves, the median resale loss for an investor in Q3 ($28,000) was slightly larger than for an owner-occupier ($20,000), but investors also saw bigger resale profits - $201,000 as a median, versus $192,500 for owner-occupiers.



Pain Gain





Investor -$28,000 -$11,400,836 $201,000 $1,121,688,936

Owner Occupier -$20,000 -$14,598,175 $192,500 $1,682,671,424

Investor Owner Occupier

Pain Gain Pain Gain

Auckland 9.6% 90.4% 8.0% 92.0%

Hamilton 0.4% 99.6% 1.2% 98.8%

Tauranga 3.1% 96.9% 2.8% 97.2%

Wellington 0.9% 99.1% 1.7% 98.3%

Rest of NI 1.4% 98.6% 1.5% 98.5%

Christchurch 8.4% 91.6% 12.3% 87.7%

Dunedin - 100.0% - 100.0%

Rest of SI 5.1% 94.9% 3.8% 96.2%

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Main Urban Areas

Upper North IslandThe main centres in the top of the North Island continued to see strong gains in the third quarter of 2019. Gisborne saw its share of resales made for a gross profit rise from 98.1% in Q2 to 98.5% in Q3, while Whangarei’s figure went from 97.5% to 98.7%. Rotorua did weaken slightly, but with 98.1% of resales still being made for a gross profit (down from 99.4% in Q3), it was hardly a bad result.

In dollar terms, the gains were also strong. Gisborne’s median gross profit at resale in Q3 was $160,000, while Whangarei was $182,000, and Rotorua up above the $200,000 mark ($204,000). Similarly, median losses were small – Whangarei’s figure was only $13,000, while Gisborne was just $2,000. Rotorua’s median loss was zero, with three properties sold for the same price as originally paid, and one for less (by $3,000). This was an apartment in Mourea, bought in May 2002 for $258,000 and sold in August 2019 for $255,000.


Q3 2019 Q2 2019

Gisborne District 1 .5% 1 .9%

Rotorua District 1 .9% 0 .6%

Whangarei District 1 .3% 2 .5%

Pain Gain





Whangarei District -$13,000 -$105,000 $182,000 $62,004,957

Gisborne District -$2,000 -$4,000 $160,000 $22,042,388

Rotorua District $0 -$3,000 $204,000 $44,691,652

0%

10%

20%

30%

40%

50%

1997 2002 2007 2012 2017

Whangarei DistrictGisborne DistrictRotorua District

Lower North IslandAll of the key centres around the lower North Island remain a picture of strength. Around Hastings, Napier, New Plymouth, Palmerston North, and Whanganui, even the lowest figure for the share of resales for a gross profit in Q3 (98.7% in Hastings) was still very strong. New Plymouth and Palmerston North were at 98.9%, and Napier and Whanganui more than 99%. High proportions of profit-making resales reflect the continued growth in property values in each of these markets.

Consistent with the high frequency of resale profits, the gains themselves were impressive too. New Plymouth’s median resale profit was $128,500 in the third quarter, and then the figures ranged right up to $230,000 in Napier. Those median resale profits far outweighed any resale losses in each of these centres.


Q3 2019 Q2 2019

Hastings District 1 .3% 1 .1%

Napier City 0 .6% -

New Plymouth District 1 .1% 3 .3%

Palmerston North City 1 .1% -

Whanganui District 0 .5% 1 .0%

Pain Gain





Hastings District -$55,000 -$120,000 $214,500 $53,099,460

Napier City -$15,000 -$15,000 $230,000 $47,824,530

New Plymouth District -$17,000 -$53,500 $128,500 $46,654,560

Palmerston North City -$80,000 -$185,000 $180,000 $55,649,694

Whanganui District -$1,500 -$1,500 $146,000 $30,092,336

0%

10%

20%

30%

40%

50%

1997 2002 2007 2012 2017

Napier CityNew Plymouth DistrictPalmerston North CityWhanganui District

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South IslandAcross the key South Island centres, property resellers continue to make gross profits in the vast majority of cases. In Invercargill, 98.9% of resales in the third quarter were above the original purchase price, the same figure was seen in Queenstown (which reflected just one property), and Nelson had no resales made at a loss in Q3.

With resale losses not really an issue around the South Island, more interest is in the resale gains. Queenstown’s median gross profit in Q3 was more than $350,000, with Nelson at $208,000 and Invercargill $116,000. The total profits across each of these centres were around the $35m-$40m mark.


Q3 2019 Q2 2019

Invercargill City 1 .1% 1 .6%

Nelson City - 0 .9%

Queenstown Lakes District 1 .1% -

Pain Gain





Queenstown Lakes District

-$73,000 -$73,000 $356,750 $40,363,498

Invercargill City -$52,000 -$127,000 $116,000 $35,205,901

Nelson City - - $208,000 $40,497,245

Invercargill CityNelson CityQueenstown Lakes District

0%

20%

40%

60%

80%

1997 2002 2007 2012 2017

Outside the Main Urban Areas

Generally speaking, property markets around regional NZ are also faring pretty well, with profit-making resales common. There are, however, some areas of weakness. These markets have been sluggish for a while now, and include the West Coast and parts of Canterbury .

Lowest proportion of loss making resales in Q3 2019:

� Essentially all of the North Island, except for some slightly weaker figures in Waitomo and Central Hawke’s Bay.

� The top and bottom of the South Island – Tasman District, Otago, and Southland .

Largest proportion of loss making resales in Q3 2019:

� The West Coast .

� Many parts of Canterbury, including Selwyn, Kaikoura, and Waimakariri.

16 16

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Whilst all reasonable effort is made to ensure the information in this publication is current, CoreLogic does not warrant the accuracy, currency or completeness of the data and commentary contained in this publication and to the full extent not prohibited by law excludes all loss or damage arising in connection with the data and commentary contained in this publication.

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Auckland office Level 5 41 Shortland Street Auckland 1010 Email: reports@corelogic .co .nz

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Published date: Quarter 4, 2019

pain and gain report · 2019. 11. 21. · for ‘gain’, and 4.1 years for ‘pain’. wellington...

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