New Zealand housing market breaks resale profit record as Wellington, Auckland post huge capital gains

Any talk of a cooling housing market is premature, if the latest real estate sales data is anything to go by - with just one in 100 residential properties failing to make a profit in the first quarter of the year.

Property database CoreLogic on Tuesday released its Pain and Gain report for January-March 2021, in which it revealed profit-making residential property resales had reached 98.9 percent - the highest peak in the 25 years this data set has been recorded.

But chief property economist Kelvin Davidson has good news for first-home buyers: capital gains like this won't last forever.

He believes the Government's housing changes, announced in March, will cause a slowdown in property price growth - but warns their effects may only become evident in the latter half of this year.

"We're now more or less at a turning point, and I'd anticipate some softening in the figures by the end of the year, as market conditions ease and value growth slows."

For now, however, the gains are huge. The median resale gain over the first quarter of this year was $315,000, up $24,000 from the fourth quarter of 2020 alone. The median resale loss, meanwhile, was negligible at just $20,000.

Irrespective of buyer, property type or location, Davidson says almost everybody who put their house on the market in the first quarter of 2021 sold it for more than what they bought it for.

"The figures are stronger than ever, and of course consistent with what we know has happened to property values themselves, which have pretty much been on an unbroken upwards trend for a decade now," he explained.

"Capital gains intensified in the first three months of 2021 with a 7.2 percent rise in that short period alone, driven largely by low mortgage rates and a tight supply-demand balance. In that kind of environment, it's logical that most owners will get a price above what they originally paid."

Davidson says while the gains to be made are substantial, there's no real benefit to be had unless the seller is downsizing or moving to a cheaper area.

"Those gains are simply recycled back into the next purchase - and in fact, would often be accompanied by more debt too."

'Gains are strong and losses almost non-existent'

In New Zealand's main centres, profit-making property resales increased in Auckland, Wellington and Dunedin but dipped slightly in Hamilton and Tauranga.

"However they're still high to historical standards and the sales made below the original purchase price related to only a small handful of deals," Davidson said.

"In this rising market, the gains are strong and the losses almost non-existent."

Wellington saw the largest resale gains between January and March 2021, with the median property profit resale hitting $506,000 - up nearly $60,000 on the previous quarter.

Auckland wasn't far behind, with a median resale gain of $455,000, with Tauranga above $400,000, and Hamilton and Dunedin both above $300,000. Christchurch's resale gains were behind other centres on $196,250, but still up nearly $40,000 on the fourth quarter of 2020.

Christchurch also had the lowest share of property resales making a profit, although the figure of 97.6 percent was its highest for almost six years and is not notably different from other centres.

In the North Island, the likes of Gisborne, Whangarei, Hawke's Bay, Whanganui, Palmerston North, and Rotorua also fared well, with a share of profit-making resales above 98.5 percent and median gains of more than $300,000.

Down south, Queenstown, Nelson and Invercargill all had impressive showings. Profit-making resales in these areas were at least 98.9 percent of total properties sold and median profits were in excess of $199,000.

Only in Buller and the MacKenzie District were property resale profits failing to keep pace with the rest of the country - albeit not by much, with each of these areas having profitable resales of 91.8 percent and 91.3 percent respectively.