The Block NZ: Property expert explains why the auction was a fizzer

Three out of the four Block NZ apartments failed to generate a profit for contestants because the show's format demands they sell at auction, a property expert has claimed.

Only two of the homes sold during Sunday night's auction, and only one above the reserve price. A third sold after the show went off-air, at the reserve price. The fourth remains unsold.

"This thing's a metaphor for the housing market," OneRoof property commentator Ashley Church told The AM Show on Monday.

"If you go back to season one, which was in 2012, the combined profits between the contestants was about $232,000. That was early in the life cycle of the property market. That ratcheted right up to 2017... between the contestants, they made $981,000. That was the peak of the cycle - it's come back since then."

Auckland property prices have cooled over the past couple of years, after making record gains between 2009 and 2017. 

Church said auctions are fantastic for sellers when the market is running hot, because it gets everyone who's interested in a property into a room and forces them to compete - and with capital gains likely, people are prepared to pay as much as they can.

"In this environment, that's much less likely to happen," he said, but the alternative - selling the properties via tender - wouldn't make for good television.

Ashley Church.
Ashley Church. Photo credit: The AM Show

The Block NZ host Mark Richardson said the show's valuers used "the same formula that has been used every year - but they also this year tried to reflect where the market was at, and shaved a lot of money off the reserves in an effort to try to give these contestants every opportunity of making a decent profit". 

"Even then, we didn't get to levels that were substantially below valuation."

He suspects selling the four apartments on the same night may have depressed their market value.

"It's not your ideal, but it's the TV show...  I would have liked to have seen the others make more money, but it didn't happen. When you go into that auction room, you're at the mercy of the market - and we saw where it's at."

Economist Cameron Bagrie said there were "no surprises at all" in the episode.

"We've known for a long time now Auckland's been the most sluggish, weakest part of New Zealand. Why? ... Because it's the most damned expensive, if you strip out Queenstown. Auckland still trades at a house price to income ratio of up close to nine.

"Generally speaking, the cheaper places around Auckland - anything south of the median sale price of $850,000 - is still firing out the door.  But stuff in excess of $1 million, $2 million, that sort of stuff is not what you call hot. We're struggling to sell it, and we saw that on television last night."

Cameron Bagrie.
Cameron Bagrie. Photo credit: The AM Show

With The Block NZ remaining a ratings bonanza for Three, Richardson is already looking forward to next year's competition. He rejected suggestions it should move out of Auckland, as that would increase production costs.

Church said next year's contestants should go into it knowing they're unlikely to make any money, and just have fun.

"The market's not going to recover by next year. I think we've probably got another couple, maybe even three years before the market starts to tick up again. Next year, we're going to have more or less the same outcome again."