Apartment Owners Bear Brunt of Resale Losses
While a turnaround in the residential housing market has led to the first overall rise in profitable resales in two years, it has not been all roses for apartment owners.
8 February 2024
CoreLogic’s Pain & Gain Report for the fourth quarter of last year shows about 26 per cent of apartment resales have been at a loss. The median loss on apartments was $36,000.
This contrasts with a median loss of $45,000 for people selling stand-alone houses, but only 6.1 per cent of houses were sold for less than was originally paid for them.
CoreLogic’s chief property economist, Kelvin Davidson, says while the higher loss figure is concerning for apartment resellers, this market segment has been much weaker in past cycles.
In Auckland 10 per cent of homes that sold in the fourth quarter were for less than their purchase price, while nationally this figures came in at 6.7 per cent. Across the country, properties selling for a loss were a staggering 18.2 per cent in Carterton, 3.5 per cent in Christchurch and 0.7 per cent in Timaru (the lowest).
By comparison, at 2021’s fourth quarter market peak just 0.7 per cent of residential sales were at a loss.
Despite these figures, the Pain & Gain report shows the number of properties being resold for more than the original purchase price rose to 93.3 per cent in the fourth quarter, up from 92.4 per cent in the previous quarter. That marks the first rise in profitable resales since the fourth quarter of 2021, when it hit the peak of 99.3 per cent.
The median gain also increased for the first time since the end of 2021, lifting to $305,000 from $297,000 in Q3. Meanwhile, the median resale loss remained significantly smaller, at $45,000 in the fourth quarter, smaller than $50,000 in the three months prior.
Davidson says the latest figures signal the trough for this measure of housing performance has probably passed.
“More than nine in ten properties are selling for a profit, although it must be noted this is still quite low compared to the longer-term average and reflective of the fact that national values are still about eleven per cent below their peak,” he says.
“However, the higher number of profitable resales is consistent with the rise in property values since September’s trough, alongside wider market forces such as the peak for mortgage rates, high net migration, a resilient labour market and easing credit conditions.”
Hold period counts
Davidson says the hold period plays a vital role in these figures, with long ownership lengths almost inevitably resulting in a gross profit. Properties resold for a gross profit had been owned for a median of 8.5 years, up from 8.3 years in the third quarter, and notably higher than typical figures of about seven years.
The hold period for loss-making resales was 2.3 years, on par with recent quarters.
Hold periods to achieve a gross profit do seem to have started to lengthen in the past few quarters, although this may have been influenced by the wider market downturn incentivising prospective vendors to hold longer to achieve a profit, he says.
For owner-occupiers, these aren’t necessarily cash windfalls, with the new equity often just recycled into the next purchase, he says.
“When comparing the hold period for resale losses versus resale gains, clearly a longer hold period gives time for capital gains to accumulate, whereas shorter hold periods tend to have greater risk of losses.
“Counting back about two years to the market peak of 2021’s fourth quarter, any properties bought then but sold in late 2023 faced different market conditions in those two periods, and a greater chance of a gross loss. Presumably, many of these resellers had intended to hold for longer, but perhaps had their hand forced due to various personal circumstances,” Davidson says.
Amongst the main centres, the longest hold period for resale gains was 9.6 years in Wellington, closely followed by 9.4 in Dunedin, and nine apiece in Auckland and Christchurch. Tauranga was at 8.6 years, and Hamilton a little further back at 7.7. For resale losses in the fourth quarter, the hold periods were generally about two years across the main centres, although Auckland was a little higher at 2.5 and Wellington 2.7.
Investors saw an increase in profitable resales to 92.9 per cent, up from about 91 per cent at the start of last year. Meanwhile, 92.8 per cent of owner-occupiers made a profit, down from 93.1 per cent in the third quarter and the highest loss-making proportion since the fourth quarter of 2015.
“This was an interesting contrast for owner-occupiers and investors in the final quarter of 2023,” Davidson says. “While the differences in profitable resales between investor and owner-occupiers are pretty small, one reason for the shift could be a longer hold period for investors who sold in the fourth quarter.
“It’s also possible that in a slightly soft market, some owner-occupiers have been willing to take the plunge and make a sale for a price less than what they paid, if they can see an opportunity to upgrade for less on their next property.”
At national level, the median resale gain for investors was $324,500, a bit above the owner-occupier figure of $295,000. And for losses, the median for investors was about $50,000, again a little above the owner-occupier result of $41,500.