Pain & Gain Report Pain... · involves cost, and often the profits from one property sale are simply reinvested into the next purchase. CoreLogic Pain & Gain Report New Zealand Quarter

Pain & Gain ReportNew ZealandQuarter 2, 2019

CoreLogic Pain & Gain Report New Zealand Quarter 2, 2019 | 2

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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

About CoreLogic 16

About Us ............................................................................................................................................................................................................. 16

Disclaimer ........................................................................................................................................................................................................... 16

Contents

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Executive SummaryThe 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 between 1 April 2019 and 30 June 2019) include:

1. The proportion of all properties resold in Q2 2019 for more than the original purchase price (i.e. a gross profit, or “gain”) was 95.3%. That’s still a high number historically, but it was nevertheless the lowest since Q3 2016 (95.0%).

2. The slightly softer national result in Q2 reflected the creeping weakness in Auckland. There, the proportion of property resales for a gross profit fell from 93.6% in Q1 2019 to 91.1%. Put another way, almost 9% of resales in Auckland in Q2 were made below the original price, and there is also a tendency for those loss-making resales to have been held for short periods of time – 68% of them for three years or less.

3. Auckland’s rising ‘pain’ is consistent with wider market forces in the city – listings are high, buyers are patient, and so to get sales over the line, some sellers are having to accept less than what they paid.

4. Even so, it’s important to distinguish between the frequency of a loss-making resale and the dollar amounts of those losses. Nationally, the median gross loss on property resales in Q2 2019 was $22,500, unchanged from the first quarter of the year. 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).

5. Meanwhile, the national median resale profit in Q2 2019 was $197,000, up a touch from $196,000 in the first quarter of the year, and actually the second highest on record. The latest figure for Auckland was $339,000, Tauranga $243,000, and Christchurch was a bit further back at $130,000.

6. By property type, the proportion of house resales made above the original purchase price remained high in Q2 2019, at 95.6%. The last time this figure was less than 95% was exactly three years ago in Q2 2016 (94.6%). This meant that the overall decline in the proportion of resales made for a profit in Q2 2019 was driven by the apartment segment. From 89.5% in Q1 2019, the share of apartment resales made for a gross profit in Q2 dropped to 85.3%.

7. Overall, gross resale gains are still strong, albeit they’re becoming just a little bit less common. It’s also important to note that selling a house involves cost, and often the profits from one property sale are simply reinvested into the next purchase.




National OverviewAcross 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 Q2 2019 was 95.3%. That’s still a high number historically, but it was nevertheless the lowest since Q3 2016 (95.0%).

The high (albeit slightly weaker) proportion of properties being resold for a gain in the second quarter of 2019 continues the trends of the past few years, and reflects the fact that property values are generally still rising in many parts of the country. Of course, the pace of those increases is cooling down, so we now start to see a bit more ‘pain’ (i.e. a few more loss-making resales) in the market over the rest of the year.

Indeed, the flipside of a drop in the share of properties making a profit at resale is obviously a rise in the proportion making a loss. This figure ticked up from 3.8% in Q1 2019 to 4.7%. The bulk of these properties have not had a consented renovation. Indeed, less than one in 10 of those loss-making resales had actually had a previous building consent issued – or, in other words, making a gross resale loss after renovation is very uncommon.

Median gross profit/loss Gross profit/loss on resale

Pain -$22,500 -$37,764,294

Gain $197,000 $3,387,472,110

Proportion of total resales at a loss

Nationally the median resale profit in Q2 2019 was $197,000, up a touch from $196,000 in the first quarter of the year, and actually the second highest on record (only surpassed in the more than 20-year history of this series by Q4 2018’s figure of $200,000).

However, despite the high median profit in Q2 2019 (and the still-high proportion of resales that actually make a profit), the total made across all resales has stayed relatively low because the overall level of activity across the property market is subdued. Indeed, after peaking at $5.2bn in the busy market in mid-2016, total resale profits have gradually declined and in Q2 2019 were $3.4bn.

Meanwhile, the median gross loss on property resales in Q2 2019 was $22,500, unchanged from the first quarter of the year. Total losses in Q2 were $37.8m.

Overall, property resellers continue to generally make significant gross profits, with relatively few sales still being made below the original purchase price. However, it needs to be remembered that these ‘profits’ will often go straight back into the next property purchase. In addition, the figures for Q2 suggest that we may have reached a turning point and that profits will be harder to find in the coming quarters.

Q1 2019 3.8%

Q2 2019 4.7%




Median Hold Period

For New Zealand as a whole, properties that resold for a gross loss in the June 2019 quarter had been owned for 2.9 years. This was the fifth quarter in a row that resold properties had been held for less than three years. These are short hold periods, when you consider that in Q4 2016, for example, loss-making resales had been owned for a median eight years.

Short hold periods on these properties indicate that when owners are starting to consider alternatives in the current market – low levels of transactions and slowing capital gains – they aren’t lingering over the decision. They’re acting quickly and moving on.

Hold periods for profit-making resales are longer, at a median of 7.7 years in Q2 2019. That figure is relatively high in a historical context, although lower than the peak of more than 8.5 years in late 2015.

Hold periods are also longer where a property has been renovated, regardless of whether or not a gross profit is made at resale. For profit-making resales in Q2 2019 with a previous building consent, the median hold period was 11.6 years – versus 7.1 years without a previous consented

renovation. For losses in Q2 2019, the median hold period with a building consent was 8.9 years, versus 2.8 years without a renovation.

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.

At the regional level, median hold periods for resale losses were generally similar in Q2 2019, at 2-3 years. However, Dunedin is less than that (at 1.1 years), and Christchurch a little higher (3.9 years).

Christchurch also had a relatively long hold period for resale gains, at 10.8 years in Q2 2019, as did Wellington (9.6 years). But the other main centres were all in the 6-8 year range.

Median Hold Period Pain Gain

New Zealand 2.9 7.7

Auckland 2.6 8.1

Hamilton 1.7 5.9

Tauranga 2.4 6.5

Wellington 2.4 9.6

Rest of NI 2.5 7.1

Christchurch 3.9 10.8

Dunedin 1.1 7.7

Rest of SI 3.7 7.2




Profit/Loss ($) Pain Gain

Median gross profit/loss

Gross profit/loss on resale



Apartments -$19,500 -$2,304,458 $160,000 $60,622,003

Houses -$22,000 -$27,397,123 $195,000 $3,099,760,310

The median gross profit on house resales in Q2 2019 was $195,000, far above the median loss of $22,000. Total gains across houses were $3.1bn in Q2, again much higher than total losses of $27.4m.

Both median gains and losses on apartments in Q2 2019 were smaller than for houses (which makes sense given that apartments are generally lower value to start with), at $160,000 and $19,500 respectively. Total resale gains for apartments were $60.6m and losses were $2.3m.


The proportion of house resales made above the original purchase price remained high in Q2 2019, at 95.6%. The last time this figure was less than 95% was exactly three years ago in Q2 2016 (94.6%).

This meant that the overall decline in the proportion of resales made for a profit in Q2 2019 was driven by the apartment segment. From 89.5% in Q1 2019, the share of apartment resales made for a gross profit in Q2 dropped to 85.3%. This was the lowest figure for apartments since the first three months of 2015 (when the figure was 81.4%).

It’s important to note that the proportion of apartments being resold for a profit has been far lower in the past – e.g. in Q4 2008, it was only 47.1%. However, the gradual downwards trend that’s been seen for profit-making apartment resales since mid-2017 highlights how any ‘market fatigue’ that sets in when the pace of capital gains slows tends to affect this part of the market earlier and/or more than houses.

This is perhaps because the typical apartment buyer’s approach is more financially-minded (as they’re also more likely to be investors) and they are prepared to exit as soon as the sums don’t work.

Property Types

Q1 2019 3.6%

Q2 2019 4.4%

Q1 2019 10.5%

Q2 2019 14.7%

HOUSES APARTMENTS

Apartments

Houses




Amongst the main centres in Q2 2019, the real interest centred on Auckland. There, the proportion of property resales for a gross profit fell from 93.6% in Q1 2019 to 91.1%. This has been a gradual decline since 2015-16, and the latest figure was the lowest since the third quarter of 2012 (i.e. almost seven years ago).

Put another way, almost 9% of resales in Auckland in Q2 were made below the original purchase price. To put that into context, the figure for Tauranga was only 2.6%, Hamilton 1.4%, and Wellington 0.6%. There was also a tendency for those loss-making resales in Auckland to have been held for short periods of time – 68% of them for three years or less.

In the South Island, Dunedin also remains a market where strong profits (or minimal losses) are being made – 99% of resales in Q2 2019 were above the original purchase price. Christchurch is weaker, but it has at least been stable for a few quarters now, with the share of resales being made for a profit hovering at about 90% for the past year.

So as noted, Auckland stands out as being the only main centre where the pain versus gain trend is clearly moving in the wrong direction. This is consistent with wider market forces in the city – listings are high, buyers are patient, and so to get sales over the line, some sellers are having to accept less than what they paid.


Q2 2019 Q1 2019

Auckland 8.9% 6.4%

Hamilton City 1.4% 1.7%

Tauranga City 2.6% 1.8%

Wellington 0.6% 0.5%

Christchurch City 11.1% 10.4%

Dunedin City 1.0% 0.2%

Main Centres

Auckland

Hamilton City

Tauranga City

Wellington




Profit/Loss ($) Pain Gain





Auckland -$31,750 -$21,171,764 $339,000 $1,241,706,090

Hamilton City -$22,000 -$204,000 $210,500 $110,470,306

Tauranga City -$15,000 -$757,000 $243,000 $147,579,711

Wellington -$42,500 -$458,500 $270,000 $382,905,972

Christchurch City -$19,000 -$4,769,272 $130,000 $178,790,780

Dunedin City -$5,000 -$211,000 $176,313 $98,359,863


That said, we need to distinguish between the frequency of loss-making resales and the actual loss made in each of those cases. Indeed, although it’s becoming a bit more common for resellers in Auckland to make a gross loss, the dollar values aren’t markedly worse than elsewhere. In Q2 2019, the median Auckland resale loss was $31,750, lower for example than $42,500 in Wellington. Median losses elsewhere ranged from just $5,000 in Dunedin up to $22,000 in Hamilton.

At the same time, profit-making resellers in Auckland are still ‘in the money’. The median gain in Q2 2019 was $339,000, far above the next-best figure (amongst the main centres) of $270,000 in Wellington. Dunedin and Christchurch’s figures were further back, at $176,313 and $130,000 respectively.

Overall, it’s still ‘business as usual’ for most of the main centres, but Auckland will need to be watched as we get into the next few quarters.

Christchurch City

Dunedin City




Profit-making resales remained high for both investors and owner-occupiers in the second quarter of 2019, albeit the trend is weakening. Just short of 96% of owner-occupiers across NZ made a gross profit at resale in Q2 2019, still high, but nevertheless the lowest figure in almost three years. The shift has been more marked for investors – 94.4% of resellers saw a gross profit in Q2 2019, down from 96.2% in Q1 and the lowest figure since mid-2016. As per normal, 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 change in trajectory for profit-making resales across the different owner types is the key point here, rather than the fact that investors less often sell above the original purchase price than owner-occupiers. After all, investors have a more financially-minded approach, i.e. a willingness to exit when the sums don’t stack up.

In addition, investors have a greater tendency to hold apartments than owner-occupiers and, as outlined above, the apartment segment is where a degree of ‘market fatigue’ seems to have set in over the past few months.

However, this should not be interpreted as investors exiting the sector en masse and driving a drop in the amount of rental apartments available. This is because one investor selling may simply be trading to another investor, keeping the stock of rentals unchanged. Indeed, the CoreLogic Buyer Classification data shows that even despite extra costs and regulations, ‘mum and dad’ investors retain a solid appetite to buy property (e.g. because yields are now rising, capital gains tax uncertainty is gone, and the returns available on alternative assets such as term deposits aren’t especially exciting either).


Type of Owner

The gaps are 3.0%-points or more in Hamilton and Auckland, but smaller in Wellington and Dunedin.

In the latter two centres, the gap can’t be any bigger because the likelihood of resales profits is very close to 100% for both owner types – 99.5% for owner-occupiers in Wellington and 99.0% for investors, with the same figures in Dunedin standing at 99.3% and 98.9%.

In Tauranda, although investors (98.2%) made resale profits slightly more often than owner-occupiers (96.9%), both figures are still high.

The proportion of owner-occupiers reselling for a gross profit is higher than investors in each of the main centres, apart from Tauranga.

Investor

Owner Occupier




Investor Owner Occupier

Pain Gain Pain Gain

Auckland 7.6% 92.4% 10.6% 89.4%

Hamilton 0.3% 99.7% 3.4% 96.6%

Tauranga 3.1% 96.9% 1.8% 98.2%

Wellington 0.5% 99.5% 1.0% 99.0%

Rest of NI 1.8% 98.2% 2.3% 97.7%

Christchurch 10.8% 89.2% 12.1% 87.9%

Dunedin 0.7% 99.3% 1.2% 98.8%

Rest of SI 4.5% 95.5% 5.5% 94.5%

Nationally, median profits and losses were similar for both investors and owner-occupiers. The investor figures were $200,000 gain and $26,500 loss, and for owner-occupiers it was $195,000 gain and $20,500 loss.

Investor Owner Occupier

Pain

Median gross profit/loss -$26,500 -$20,500

Gross profit/loss on resale -$16,333,139 -$17,911,449

Gain

Median gross profit/loss $200,000 $195,000

Gross profit/loss on resale $1,149,106,767 $1,991,077,994

Proportion of resales




The main centres in the top of the North Island continued to see strong gains in the second quarter of 2019. Less than 1% of resales in Rotorua in Q2 were made below the original purchase price, and about 3.0% in both Whangarei and Gisborne. In other words, consistent with the continued growth in property values in these markets, 97% or more of resales were made above the original purchase price.

In dollar terms, the median loss in Gisborne was a minimal $500, while the median gain was $130,000. Whangarei saw a median loss of $25,000 and a gain of $194,000, while Rotorua topped the gain ranks with a figure of $203,000. It also had the highest median loss of $43,750, but only two properties came into this bracket, and only one of those sales was actually for a meaningful loss. This was a house in Lake Tarawera purchased in July 2010 for $400,000 and sold in May this year for $312,500.

Whangarei District

Gisborne District

Rotorua District

Q2 2019 Q1 2019

Gisborne District 3.0% -

Rotorua District 0.7% 0.4%

Whangarei District 2.8% 1.0%


Main Urban AreasUpper North Island

Pain Gain





Whangarei District -$25,000 -$660,000 $194,000 $73,968,636

Gisborne District -$500 -$71,000 $130,000 $30,298,850

Rotorua District -$43,750 -$87,500 $203,000 $60,358,446

*The reason why the median gross loss for Gisborne shows in the table as $0 yet the total is $145,000 is that, of the seven sales covered, six were sold at the same price as originally paid – therefore the median (or fourth reading) is $0. The remaining sale (31st Oct. 2018) was for $240,000, which was $145,000 below the purchase price (15th Nov. 2007).




In the majority of the centres around the lower North Island, the proportion of resales in Q2 2019 that were made for a gross profit was close to 100%. This included Napier, Palmerston North, and Hastings. Whanganui’s figure was very strong too (98.5%), and in truth so was New Plymouth’s (97.0%) – albeit New Plymouth was down from 98.5% in Q1. High proportions of profit-making resales reflect the continued growth in property values in each of these markets.

Hastings District

New Plymouth District

Palmerston North City

Whanganui District

Napier City

Q2 2019 Q1 2019

Hastings District 0.4% 0.7%

Napier City - 1.2%

New Plymouth District 3.0% 1.5%

Palmerston North City - 1.1%

Whanganui District 1.5% 1.6%


Lower North Island

The median resale profits ranged from $121,250 in Whanganui up to $216,750 in Napier, while median losses were minimal everywhere. Hastings had a median loss of $25,000, but this was from just one resale, a house in Haumoana purchased in May 2001 for $120,000 and sold $95,000 in May this year.

Pain Gain





Hastings District -$25,000 -$25,000 $193,000 $55,341,513

Napier City - - $216,750 $48,431,117

New Plymouth District -$5,000 -$113,719 $125,000 $47,548,484

Palmerston North City - - $155,000 $57,632,388

Whanganui District $0 -$20,000 $121,250 $26,192,062




Across the key South Island centres, almost all resales continue to be made at more than original purchase price – indeed, in Queenstown, the figure was 100% in Q2 2019. Nelson’s figure was more than 99%, and Invercargill more than 98%.

Invercargill City

Nelson City

Queenstown Lakes District

Q2 2019 Q1 2019

Invercargill City 1.3% 1.6%

Nelson City 0.5% -

Queenstown Lakes District - 0.7%


South Island

With resale losses not really an issue around the South Island, more interest is in the resale gains. Queenstown’s median gross profit in Q2 was more than $350,000, with Nelson at $207,000 and Invercargill $104,000. The total profits across each of these centres were in the range of $40-$50m.

Pain Gain





Queenstown Lakes District - - $352,875 $49,154,264

Invercargill City -$12,500 -$70,000 $104,000 $37,809,604

Nelson City $0 $0 $207,000 $42,093,248




Lowest proportion of loss making resales in Q2 2019:

X Essentially all of the North Island, except for some slightly weaker figures in Northland and the South Taranaki District.

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

Largest proportion of loss making resales in Q2 2019:

X The West Coast – but to a much lesser degree in Westland than Grey and Buller.

X Many parts of Canterbury, including Selwyn, Kaikoura, Ashburton, and Waimakariri.


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.

Outside the Main Urban Areas




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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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You acknowledge and agree that CoreLogic does not provide any investment, legal, financial or taxation advice as to the suitability of any property and this publication should not be relied upon in lieu of appropriate professional advice.

Published date: August 2019





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Pain & Gain Report Pain... · involves cost, and often the profits from one property sale are simply reinvested into the next purchase. CoreLogic Pain & Gain Report New Zealand Quarter