CoreLogic New Zealand’s latest Pain and Gain Report for Q4 2020 found profit-making residential property resales between October and December increased to 98.4%; 20 basis points higher than the previous record of 98.2% in Q4 2005.
This national median resale gain equated to $276,000, with a median hold period of 7.3 years. On the flipside, 1.6% of resales in Q4 2020 were made below the original purchase price, or a median resale loss or ‘pain’ of just $25,000.
The Pain and Gain Report is New Zealand’s only regular analysis of specific property resales and how they compare to the home’s previous purchase price.
CoreLogic’s Senior Property Economist, Kelvin Davidson, says “This is the highest and most consistent share of properties being resold for gross profits than at any point since at least the mid-1990s when CoreLogic began recording data for this series. The strength in profit-making resales is a reflection of a long and strong growth cycle that has been spurred on by the recent unprecedented surge in values in the final few months of 2020.”
Mr Davidson says a similarly strong result was seen across both houses and apartments. “Houses recorded 98.7% of resales at a gain, up from 97.5% in Q3, while 90% of apartments resold for a gain, up from 87% in Q3. Apartments have historically shown lower resale-for-profit figures than houses, but this sector was also robust in Q4, with profit-making resales higher than typical figures in the past.”
Mr Davidson says looking ahead, it’s likely that resale profits will remain strong in Q1 and possibly into Q2 of 2021, but the record high gains might slow further into the year.
“In addition to loan-to-value ratios being reintroduced, the Reserve Bank now also has to explicitly report on how its official cash rate decisions, which target inflation and employment, might impact housing prices. The Government also wants the RBNZ to look further at possibly restricting interest-only lending for investors and also how debt to income caps for mortgages might work
“It all just reinforces how investors are in the sights of the regulators and if fewer of them can act in the market, it’ll reinforce the chances of a slowdown later.”
The national trend of strong property ‘gain’ and minimal ‘pain’ was replicated in all of the main centres in Q4 2020.
“Christchurch’s share of resales for a gain in Q4 2020 was 96.6%, the highest for the Garden City in almost five years but the lowest share of properties resold for a profit out of the main centres. Auckland and Tauranga also saw relatively large rises in the share of properties being resold above the original purchase price, with Auckland up 200 basis points to 97.7% and Tauranga up 180 basis points to 99.1%.
“In Dunedin, Hamilton, and Wellington, the share of resales that saw ‘gain’ in Q4 2020 remained at around 99%, with less than 1% of resales made below the original purchase price. Each of these cities has had low levels of pain for at least three to four years now,” says Mr Davidson.
How the main urban areas fared
“The general rebound in property sales and values across the country in the past three to six months, and the flow-on effects that this has had on resale performance, can also be seen across the main urban areas in the top of the North Island,” says Mr Davidson.
Upper North Island
One hundred per cent of resales in Gisborne in Q4 2020 were made above the original purchase price, with Whangarei’s figures standing at 99.8% (only 0.2% or one sale below the original purchase price). Meanwhile, Rotorua had 99% of resales in Q4 made for a gross profit (only two sales below original price).
“In dollar terms, the gains were also strong. Gisborne had a median resale profit in Q4 2020 of $326,500, ahead of Rotorua ($280,000) and Whangarei ($253,000). However, a busy market for sales in Whangarei meant total profits were more than $120m, versus $60-$65m in each of Rotorua and Gisborne.”
Lower North Island
Each of the markets around the lower North Island showed solid performance in terms of property resales in the fourth quarter of the year, with both Hastings and Napier seeing 100% of resales selling for a gross profit. In each of Whanganui and Palmerston North, only one resale was made below the original purchase price, or 99.5% and 99.7% above the original price respectively.
The high frequency of resale profits in these areas in Q4 was matched by the size of the gains. They ranged from a median of $195,000 in New Plymouth, up to $365,000 in Hastings. Napier and Palmerston North also had medians greater than $300,000.
Nelson saw all of its property resales in Q4 made above the original purchase price, while the figure for Invercargill was more than 99% (only three sales below original price).
The stark turnaround for average values in Queenstown, which has seen falls of about 7% in the few months after lockdown now fully reversed, is also flowing through to the resale performance of properties. In Q3, more than 8% were resold for a gross loss, but in Q4 that was less than 2% (or 98.4% sold for a resale profit).
Meanwhile, the size of resale losses remained relatively small around the South Island and the gains large. Indeed, the median profit in Q4 for Queenstown was $340,000, with Nelson now close to the $300,000 mark ($298,000) and Invercargill at $180,000.