Property profits fall to lowest rate since 2015

The latest edition of the CoreLogic Pain & Gain Report has highlighted the weakness in the national property market.

During the third quarter, 90.2% of resale properties sold for more than their previous purchase price. This was down from 91.8% in the second quarter and was the lowest profit rate since 2015.

Across the major cities, the share of profit-making resales was:

• Christchurch 95.6% (was 95.9% the previous quarter).
• Dunedin 91.9% (was 94.7%).
• Tauranga 91.2% (was 91.6%).
• Wellington 90.1% (was 93.0%).
• Hamilton 89.4% (was 88.9%).
• Auckland 83.9% (was 87.1%).

Breaking down the data

CoreLogic found that the median gain made by profitable resales in the September quarter was $269,000, compared to $305,000 in the previous quarter and a record $440,000 in 2021.

Furthermore, while 91.2% for owner-occupiers made a gross profit (with a median gain of $265,000), only 88.9% of investors made a profit ($268,000).

Also, 91.1% of house vendors recorded a profit ($265,000), while just 65.0% of apartment vendors made a profit ($126,500).

The market has shifted

CoreLogic Chief Property Economist Kelvin Davidson said the balance of power in the market had shifted towards buyers.

“This follows a prolonged decline since the extended peak in 2021, when 99% of resales were profitable. Given the recent weakness in the wider housing market, it’s not surprising that both the frequency of profitable resales and the size of the gains have decreased,” he said.

The median hold time for a loss-making resale was 2.9 years, compared to 8.5 years for a profit-making resale, prompting Mr Davidson to highlight the link between time in the market and making money from property.

“Even with the softer market conditions of the past 18 months, property owners who have held their properties for eight to nine years are still likely to make a gross profit,” he said.

“While median resale profits are still significant, especially for long-term owners, most owner-occupiers won’t see a cash windfall. Instead, the new equity will typically be rolled into their next purchase — unless they’re downsizing or moving to a less expensive area.

“Investors appear to be feeling the pinch a little more acutely, likely driven by cashflow challenges and possibly a reduced appetite to sustain loss-making properties. While we’re not seeing a widespread exit from the market, the rise in investor losses suggests cash flow may be an issue for multiple property owners and some may be opting to cut their losses rather than continue to subsidise underperforming assets, particularly with still elevated mortgage rates.”

Do you know anyone who’s thinking of buying?

Despite the fall in profit-making resales, the vast majority of vendors are still recording a gross profit. That’s because, as Mr Davidson noted, history suggests that people who hold their properties over the long-term often enjoy significant capital growth.

If any of your clients are thinking about buying in early 2025, please refer them to me. I’ll organise a pre-approval for them so they can gain certainty about their budget.