New Zealand's property market upswing has continued to drive record gross profits for homeowners, CoreLogic NZ's latest Pain & Gain report found.
In the three months to December 2021 (Q4), 99.3% of properties resold made a gross profit, or gain, on the previous purchase price, up from 99.2% in Q3 2021. In dollar terms that equates to a median resale profit of $420,000, another record high and almost double the median profit achieved pre-COVID of $223,000 (Q2 2020).
CoreLogic NZ Chief Property Economist Kelvin Davidson says the data reiterates just how big the recent 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. Across the 25-year history of this data series, never before have we seen such a high and sustained peak for profit-making resales,” he says.
"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.”
However, Mr Davidson highlights that for many owner occupiers, generally any newly found equity will simply be recycled into their next home purchase.
"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.”
Median Hold Period
Across New Zealand, properties resold for a gross profit in Q4 2021 had been owned for a median of 7.1 years, steady on Q3 2021 and consistent with the typical range of 7-7.5 years recorded in the last several reports. For loss-making resales the median hold period was 2.5 years, down sharply from 3.8 years in Q3.
Mr Davidson says "This illustrates that primarily loss-makers in the final three months of 2021 were ‘short holds', perhaps with these (few) owners never intending to sell so quickly but being forced into it and accepting a weaker price, perhaps caused by a change in life or financial circumstances.”
Out of the main centres, Christchurch had both the longest hold period for resale gains (9.5 years) and shortest hold period for resale losses (1.1 years).
Profit-making resales for houses have remained above 99% since Q1 2021, gradually rising to reach a new record high of 99.5%, or a $420,000 resale profit, in Q4 2021. Comparatively a decade ago, 80-85% of house resales made a resale gain.
The share of apartments being resold for a gross profit dipped slightly, down from 94.6% in Q3 2021 to 93.8% or $195,435 in Q4, however Mr Davidson says that's also still strong by past standards.
"Historically at various stages we have sometimes only seen about 50% 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% range.”
The national trend of strong property ‘gain' and minimal ‘pain' was replicated in all of the main centres in Q4 2021, consistent with the synchronized upturn in property values.
In each main centre at least 99% of property resales in Q4 were made above the previous purchase price. Tauranga recorded the highest proportion of properties resold for a gain at 99.8%, a touch above Dunedin at 99.6%, while Hamilton stayed steady at 99.5%.
Wellington's median resale profit remained the largest amongst the main centres at $593,000. That was just 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% in Q3 2021 to 99.4%, and also recorded the lowest median gross loss of the main centres at $3,500, a touch below Wellington at $4,000.
Mr Davidson says Auckland and Christchurch have 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% of resales made above the original purchase price. 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,” he says.
Pain & Gain Outlook
Looking ahead, Mr Davidson says 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 says.
"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,” concludes Mr Davidson.
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Pain & Gain Report is a quarterly 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 (‘gain') or gross loss (‘pain'). 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 each area for resales. The data series dates back 25 years.