"You can't lose money buying residential property" is something that's often heard from property spruikers, but losing money is exactly what happened to 10% of the people who sold Auckland residential properties in the fourth quarter of last year.
According to property data company CoreLogic's latest Pain and Gain Report, 10% of the Auckland residential properties that sold in the fourth quarter of 2023 were sold for less than their purchase price.
Around the main centres the percentage of properties selling at a loss ranged from 3.5% in Christchurch to 10.0% in Auckland.
Outside of the main centres, the area where properties were most likely to be sold at a loss was Carterton where 18.2% of sales were made at a loss in the fourth quarter (Q4), while Timaru had the lowest percentage of loss-making sales at 0.7%.
Nationally 6.7% of sales were made at a loss in Q4 2023.
That was down from 7.6% in the third quarter of last year, but still well up from the market peak in Q4 2021 when just 0.7% of residential sales were made at a loss.
Apartments fared much worse than than stand alone houses, with just over a quarter (25.8%) of apartments selling at a loss while only 6.1% of stand alone houses sold at a loss. However the size of the loss was greater for houses, with a median loss of $45,000, while the median loss on apartments was $36,000.
The median gain for the majority of sales where the selling prices exceeded the purchase price was $303,000 for houses and $147,989 for apartments.
The main determinant of whether a property was sold for a profit or loss appears to be be how long the vendor had owned it for.
The median length of time loss-making properties had been owned by their vendors was just 2.3 years, while the median length of ownership for those that sold at a profit was 8.5 years.
That may be an indication that those selling after a reasonably short period of time may have been facing financial hardship, probably through higher mortgage interest rates, and had decided to cut their losses rather than struggle on.
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52 Comments
I know of a few people that have been forced to sell because they couldn't handle the new interest rates. And a few more to come in some more expensive properties that are hanging on but won't last long. They also still think they are going to get over the valuation price. But in reality properties are selling at about 10-20% below. One guy that is going to have to sell in a few months as his mortgage flicks over to the new rate thinks he will sell his property for $2.5m with a CV of $1.9m and he has a $1m in debt. He's going to lose about half of what he thinks his equity is.
People forget that leverage works both ways. Its simply a multiplier, up and down.
If you thrive on uncertainty and risk, then apartments are a pretty "safe" bet. Many boast a plethora of problems. Buyers need to be ultra-cautious when carrying out the due diligence......
Remember, there are heaps of Aucklanders keen to offload apartments that have become thorns in the flesh.
I can well see the apartment market sinking further.
TTP
Leaky outhouses.
Body corp
life refurbishments
air con upgrades
water ingress
why would you unless you could get mortgage rates plus 3-5% these are going to get hammered,
staircase but leading downwards
why would you
John Key suggested it to FHB's that couldn't afford standalone houses...such a disappointment as PM.
Did you mean Mr Attention seeker ? The guy can’t stop self promoting himself via the press now that he is a nobody . Wonder how attention seeker junior son’s property development enterprise is going ?
He's made millions and you haven't. And he's been the PM of NZ...a good one too.
"I know of a few people that have been forced to sell because they couldn't handle the new interest rates. And a few more to come in some more expensive properties that are hanging on but won't last long."
When did they buy?
In the 2020- 2022 period?
Prior to the 2020 period?
Everyone sold at a lower than expected price feeds the downward spiral of algorithm driven valuation, as well as sample data used by professional valuers. The deluded sellers will be the worst hit, either on sale or when their first mortgage rollover happens and the banks ask for more equity.
How long can the banks extend and pretend?
Any examples of banks asking for more equity on rollover for a owner occupier loan?
Interestingly I'm hearing the opposite. Banks ignoring defaults and letting debts extend. Really interested to see how long it continues as this is somewhat against expected bank operating practices. Maybe the eventual job losses as the economy sucks in the excess of the last ten years will force their hands. Otherwise they are supporting ninja loans -no income no job.
Is interest setup to investigate this? It keeps coming up in comments. Is this real and can it be quantified?
People just not paying the mortgage and the banks doing nothing about it. There is no way this story could be boring or minor if you dig into why and how.
But that would be highly illegal..
I suspect so but its happening none the less. Perhaps you just need a decent equity position to give to the bank.
Will be interesting to see how this rolls through to 'buy off the plan' settlements still to happen and where the banks will be reluctant funders unless the purchaser can come up with a far greater deposit.
Without an upward movement in prices then the downward slide has to be factored in, not what it is today, but how far it might extend into the future.
The developers will now not allow purchasers to walk and forfeit their deposit. It will be, settle or get sued for specific performance.
May work for people living here but foreign investors could increasingly become very difficult to contact.
I used to act for a developer who would always sue for specific performance even if it was clear that the purchaser had no way to settle the agreement. I think they just liked doing that to (1) try and get them to exhaust every opportunity with third tier lenders, etc; and (2) to get a costs order so the developer could bankrupt them as well as take their deposit if they didn't get third tier lending.
Buyers should have used the tried and true developers play book. Trust and several layers of collapsible companies.
I also think there is a banking requirement that the banks put on the developers as part of lending to them that developers take all legal steps to recover the money, including bankruptcy.
But there is another question I have that has never been answered, is 'do banks carry lending insurance that they can claim against any loss from a developer default?'
Greg, I understand that headlines such as"25% of apartments sold at a loss" and using the term "spruikers" help with clicks. It's equally true that 93% of houses sold at a gain or that "The median gain for the majority of sales where the selling prices exceeded the purchase price was $303,000 for houses"
For the record, I think house prices will continue to fall.
I guess, like any stat on this site, it gives a trend of what is happening. As more properties sell at a loss it's worth noting. We get plenty of articles online about increasing prices at every opportunity to satiate the "spruikers".
headline is great - MSM will pick up on it as it looks like a shock horror story and this will help to keep driving prices down
I am sure TV news can find someone who has lost their life savings and turn it into a Homes at first sight drama story
Article on Onenews a week ago:
https://www.1news.co.nz/2024/02/02/auckland-property-market-off-to-a-be…
Still spruiking.
The main determinant of whether a property was sold for a profit or loss appears to be be how long the vendor had owned it for.
So, as|if prices drop, properties held longer may fare the same. It's like the little trickle of water running through a sand dyke - the water moves slowly backwards as it displaces the sand beneath, until it gets back to the reservoir and the trickle becomes a flood.
I know people who are facing service disruptions due to not being able to pay their bills on time, yet still holding on to their excess mortgages. I don't know what the future holds for them, but I hope job loss isn't part of it. I wonder how many others are in similar predicaments.
That isn't newsworthy Yvil. What Greg is describing is a change in trend from the historical norm. That's why it is interesting.
"Apartments", the most important word in this article, who wants to buy those?!
Yesterday my neighbour sold his house in Torbay 10% more than what he paid in 2023
House prices are going down, ho ho ho..
Yes John, all apartments are shit and worth nothing. 🤣🤣🤣
https://www.oneroof.co.nz/news/american-couple-selling-waterfront-apart…
That's not an apartment.
What would you call it then? (Oh. Perhaps you just looked at the picture?)
Edited: Holly crap! It's huge! 369sqm!
That's only an apartment if you call a multi floor stately mansion a shed. 369 sqm is the equivalent of 3 x 3bdrm houses with double ensuites and internal double garages
Take it up with Oneroof, not me.
you should have checked your source to see whether it is larger than 3 large houses combined, designed as an attached multilevel mansion. Now you just look silly.
House prices are always tied to replacement value so I don't see them shifting down much while everything is still going up. Apartments are never a good buy, I could understand you buying a cheap one in say the CBD to be close to work but you would want to get out on a Friday night to a house away from the noise.
re ... "House prices are always tied to replacement value ..."
I always chuckle when I read sweeping statements like these. The land, its size and its location are also extremely significant factors. Many would argue even more so than replacement value.
Of course they are, that's why the tv programme is called "replacement value, replacement value, replacement value" oh hang on wasn't it something about location?
"you would want to get out on a Friday night to a house away from the noise"
The Friday night noise is one of the main reasons we lived in the City Centre for many years, stuff happening, people enjoying themselves, eating, drinking, dancing, fun. We weren't keen on curling up on a sofa watching tv in the suburbs waiting to die.
This one? https://www.barfoot.co.nz/property/residential/north-shore-city/torbay/…
Edited: Nope. Not that one. It last sold in 1984 for $84k. A gross nominal return of about 6.25%.
Or this one?: https://www.barfoot.co.nz/property/residential/north-shore-city/torbay/…
Edited: Sold in Nov 22 for $928k. Sold yesterday for $990k after what looks like a fairly substantial internal renovation.
A 10% gain you say? After reno costs, agent fees and other selling costs - I wonder if they actually made anything at all ...
"Sold in Nov 22 for $928k. Sold yesterday for $990k after what looks like a fairly substantial internal renovation.
A 10% gain you say? After reno costs, agent fees and other selling costs - I wonder if they actually made anything at all"
Sale price: 990,000
Less:
Sales commission of 29,500
Legal costs estimate 1,000
Net proceeds of 959,500
Less total purchase price of 929,000 (purch price 928,000 plus legal fees 1,000)
Leaves 30,500 for renovation costs and finance costs for breakeven on this project
Nice photo!
Shows that I beams are absolutely useless in torsion.
I was hoping the photographer had used a fish eye lens until your comment got me looking at the I beam.
Shame, it looks like someone had put a lot of effort into that house.
Apartment buyers aren't buying for capital gain. It is usually either for yield or so they can pay down the mortgage really fast and move on, or is simply all they can afford. (And sometimes they're like my Indian friend who bought one for his girlfriend so his mum doesn't find out he's got a girlfriend. And the neighbor lives there rent free as she has a rich-enough sugar daddy. Gotta love apartment life.)
Hi Greg, can we start adding the words gross nominal in front of the words capital gain. Sorry for being pedantic but words convey meaning. Just saying capital gain on its own is a tad misleading and alas leads far too many to completely the wrong conclusions as you mention in your opening sentence.
got sent this by REINZ this morning:
Bayswater (Auckland) Market Insights for last 12 months: Median Sale Price - down 25.1%
Herne Bay - down 43.9%!
I know, I know: median etc, small sample etc but really.. has to tell us something…. and not many apartments in either location…
Down 25% wipes out 33.3% of previous "gains"
Down 44% wipes out 78.6% of previous "gains"
For those that bought 12 months ago and borrowed on a LVR of higher than 56% in Herne Bay, that wipes out 100% or more of their equity, some are going to be in negative equity.
Would have be better to rent (& save the deposit) than buy and experience a significant loss of equity.
Of course, the property promoters with their vested financial self interests won't tell you that.
Have you seen Herne Bay? well you likely cant now due to the traffic issues with road closures, but really it was a millionaire with a helicopter mouse trap for a smelly area with no proper beach & mangroves. The smart millionaire money bought elsewhere.
Strange. Maybe there was a reason the banks were asking for bigger deposits on apartments in 2021, and Chloe Swarbrick and the real estate agents selling shoeboxes got it wrong?
https://newsroom.co.nz/2021/03/08/small-apartments-big-deposit-bad-deal/
Did you read the entire article? It leans heavily into concluding the banks have it wrong demanding 40% or 50% deposits before lending the rest.
The woman in the article wanted to buy a 38 square metre, one-bedroom apartment for $400,000, Because it was under a certain extremely arbitrary size, the deposit percentage goes up.
On the plus side, if the woman could cobble together the deposit she'd have a mortgage of just $200,000.
On a median wage ($61,692.80) and using 50% of disposable income she could pay about $2,050 per month in repayments.
Using interest.co.nz's excellent calculator here: https://www.interest.co.nz/calculators/full-function-mortgage-calculator
... And she'd be mortgage free in 12 years with principal repayments exceeding interest payments in year 3.
And that my friends is a pretty good use of debt.
Had she paid just a 20% deposit she'd be lumbered with a near 30 year mortgage and waiting until year 21 for principal repayments to exceed interest payments. Not such a good use of debt? Maybe. Maybe not.
She'd pay $22K in interest payments in the first year - the equivalent of $423 per week 'rent'. And after 5 years that's only down to ~$400 a week. But then after 5 years her landlord would have increased the rent each year.
And the reason banks require a bigger deposit is for the very reason the article speaks of, ie the downside to apartments can be many multiples greater than townhouses, or stand-alone housing.
Given the number on leasehold land (where the physical value of the property aka the house only gets worse over time the more dilapidated it gets and the leasehold costs balloon upwards) and apartments with remediation issues that is actually a good low number of properties selling for a loss.
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