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Home resale profits predicted to start declining

By Kate Major

Experts say house resale gains will slowly curtail as prices start to drop, while Christchurch numbers buck the trend.

Pain or gain in New Zealand real estate sales?

Kelvin Davidson, CoreLogic NZ’s chief property economist, predicts change is coming despite “no dramatic shifts” shown in their most recent pain and gain survey, which measures New Zealand’s house resale profitability trends.

Q1 2022 showed only a marginal downturn in resale profits when compared to Q4 2021. The survey suggests 99.1% of the homes resold in the period generated a gross profit or gain on their previous purchase price. This figure was just a hair off Q4 2021’s number of 99.3%.

This equates to a median resale profit of $406,000, down from a record high of $435,000 in Q4 2021 — Davidson noting it was the second-highest profit in the data series’ 26-year history.

When will the gain turn to pain for house resales profits?

Making long-term predictions, Mr Davidson commented, “Given that most people have built big ‘paper’ gains over many years of ownership, it’ll take time for falling prices to have much effect on capital gains built up over several years of ownership.”

He added, “While the figures have softened consistent with the wider market slowdown, the fall is only minor, and it may be some time before we see more substantial declines in profit-making resales.”

Which regions saw the largest house resale profit changes in Q1 2022?

Auckland and Wellington saw the largest quarter-on-quarter (QoQ) declines in the percentage of properties sold for a gross profit, with Hamilton and Tauranga sellers enjoying gains — all deals delivering gross profit.

What are we seeing in house resale and investment trends in Canterbury?

Christchurch saw no QoQ changes, with 99.5% of house sales making the seller a gross profit.

Tony McPherson, Director of Metro Property Management says numbers from the REINZ Monthly Property Report for April 2022 don’t support the media’s projections of how much property prices are going to fall, which is possibly driving a diminished number of Canterbury properties coming to market.

McPherson explained, “Christchurch City maintained its median price [in April 2022], the same as the previous month at $710,000, but this was a significant drop in the volume of sales from 718 in March to 497 in April. The Median price for Christchurch City when comparing March 2022 with March 2021 is up 20.3%, $710,000 vs $590,000.”

Increase in demand for two-bedroom homes in Christchurch

Providing further insight into recent Christchurch property investment market trends, McPherson offered, “Christchurch has experienced a high level of two-bedroom apartment and townhouse style construction in recent times, demand for this style of living has not only been owner-occupiers but investors, taking advantage of the continued tax deductibility of interest for residential property, not available for existing residential property.

“The result from these units coming to the residential rental market is beginning to see a flattening of rents achieved as supply meets or exceeds demand.

“As the borders around the world open the delayed OEs are now also adding to this pool of two-bedroom properties.

“We are struggling to meet demand for three- and four-bedroom investment properties, with rent increases occurring.”

Speak to the Christchurch property management experts

If you have additional questions about the Christchurch investment property market or any Christchurch property management queries, get in touch with our knowledgeable team for an insightful chat.

Image: ‘central Christchurch’ by Jon Sullivan via CC BY-NC 2.0.

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