New Zealand Homeowners Face Rising Loss Rates in Property Sales

New Zealand homeowners are experiencing a notable shift in the property market, with an increasing likelihood of selling at a loss. According to Cotality NZ’s latest Pain and Gain Report, released in September 2023, the percentage of resales achieving a gross profit has dropped significantly, indicating a challenging environment for sellers, particularly in major cities like Auckland and Wellington.

The report reveals that only 87.8% of resales in the September quarter resulted in a profit, a decline from 89.4% in the preceding quarter. This marks the weakest performance since 2013, as noted by Cotality’s chief property economist, Kelvin Davidson. He emphasized that the current market dynamics favor buyers, with many property values still below their previous peaks.

In Auckland, the situation is particularly stark. Nearly 19.3% of properties sold in the third quarter went for less than their original purchase price, a significant increase from 15.9% in the June quarter. Wellington follows closely, with 15.8% of homes selling at a loss. Davidson attributes this trend to the fact that buyers who purchased during the market’s peak in 2021/22 are now facing the greatest risk.

Auckland’s high percentage of loss-making sales is also influenced by its substantial number of apartments. Davidson explained that the higher loss rate largely reflects long-term performance trends rather than immediate market weakness. The ongoing softening of the market has led to many homeowners adjusting their expectations regarding sale prices.

Despite the rising loss rates, nearly 90% of sellers still managed to achieve a gain during the three months leading to September. However, the size of these gains has reached a five-year low, with the national median resale gain now at $270,000, down from the peak of $440,000 in late 2021. Conversely, the median loss for sellers stands at $50,000.

Davidson pointed out that those who have held properties longer are more likely to see significant gains. The median hold period for sellers who realized a profit has reached a record 9.5 years, while those who sold at a loss typically held for only 3.7 years. He emphasized, “Time in the market matters. Longer ownership gives a much greater likelihood of securing a capital gain.”

Overall, standalone houses have fared better than apartments in the current market. The loss rate for house resales is 11.4%, the highest since 2013, while apartments have seen an alarming 36.2% of resales result in a loss this quarter. Davidson noted that this trend reflects historical patterns rather than any immediate distress.

Among major centres, Tauranga recorded the largest median gain at $352,000, with Auckland and Wellington following closely at $338,000 and $330,000, respectively. Christchurch has shown resilience, with just 5.5% of resales resulting in a loss. In contrast, Queenstown Lakes has emerged as a standout market, experiencing only 2.4% loss-making resales and a median gain of $486,000.

Despite some early signs of improved sales activity and a slight easing in stock levels, Davidson anticipates that loss-making resales will continue to be prevalent in the coming year. He explained, “Even if sales activity improves, values remain well below their peak.” Looking ahead, he expects gradual improvement through 2026, driven by lower mortgage rates and a stronger economy. Yet, he cautioned that a rapid recovery remains unlikely.

Regions characterized by strong affordability or limited supply, such as Queenstown Lakes and parts of the lower South Island, are better positioned to withstand market pressures, according to Davidson. As homeowners navigate this shifting landscape, the emphasis on strategic timing and market awareness has never been more critical.