National picture still strong:

Our latest Pain & Gain Report is out, and it shows that most home re-sellers are still making large gross profits – across NZ, the median profit (difference between sale price and the original purchase price) in the second quarter of the year was $197,000, up a touch from $196,000 in the first quarter of the year, and actually the second highest on record. A nice result if you’re one of these re-sellers, and a good chunk of equity to put to work on that next purchase up the ladder.

Auckland ‘pain’ becoming more common:

In Auckland, the median gain was even higher, at almost $340,000. However, don’t be too carried away by that headline figure – beneath the surface, there’s an element of slowly creeping ‘pain’. In the first three months of the year, more than 95% of resales in our biggest city were made for a price higher than originally paid. But roll forward to the latest three months (April-June), and that figure had fallen to 91%.

In other words, now nearly 10% of resellers in Auckland are having to sell for less than they paid. That’s not a trivial figure, and highlights the mentality shift that seems to have taken place – listings are high, buyers are in no rush, and to get sales over the line, some sellers are having to downgrade their expectations. These are more likely to have been for properties bought recently – almost 70% of the loss making resales in Auckland in Q2 had been held for three years or less.

But greater chance of a loss doesn’t mean bigger losses:

That said, there’s a difference between the likelihood of making a loss and the actual scale of that ‘pain’. Nationally, the median gross loss on property resales in Q2 2019 was $22,500 – small-fry compared to the profit of $197,000. And in Auckland, the median resale loss was $31,750, lower for example than $42,500 in Wellington (albeit a loss in Wellington is much less common).

Houses still outperforming apartments:

More than 95% of houses resold from April to June were above the original purchase price, a significant margin ahead of apartments (about 85%). Our take on this is that apartments tend to experience ‘market fatigue’ earlier and/or more keenly than houses, because the typical apartment owner (quite often an investor) is more financially-driven and less emotive than your average owner-occupier. When capital gains have diminished, they’re more prepared to cut and run.

I certainly wouldn’t conclude, however, that investors are heading for the hills in light of extra costs and regulation forced on them by the government. Nor should you assume that an investor selling up means that the stock of rental property will fall – indeed, they may just be selling to another investor.

Things may get weaker before they get better:

Overall, as property value growth slows, the scope for big gross profits in the NZ property market will diminish. But another cycle will inevitably come along thereafter, and more equity will be created.

That’s my quick round-up. Be sure to download the full report here.