Source: Radio New Zealand
As the market slumps again, sellers are facing the prospect of gambling on a recovery or just cutting their losses. RNZ / Quin Tauetau
New Zealand’s property market is facing another slow patch – leaving some owners who bought in the post-Covid peak wondering what to do next.
Cotality’s latest data shows property sales were down 2 percent in March from the same time a year earlier.
It was the third fall in activity in a row, after drops of 8 percent in January and 3 percent in February.
Values were up 0.3 percent over three months but down 1.3 percent over a year and still 17.1 percent from the peak.
Some people who bought at the peak of the market have been facing tough questions about whether to move and swallow a loss that might so far only be on paper, or rent out their houses.
Property investment coach Steve Goodey said he was encountering a large number.
“There is a heap of people who drank the Kool-Aid during the Ardern Government when interest deductibility was being removed and they all decided simultaneously to buy a two-bedroom townhouse that was cashflow negative at full value at the top of the market. There are a lot of people hanging around now with those and mostly they’ve gone down in value by 20 or 30 percent and stayed down because there’s no scarcity to them. You can buy them everywhere.
“These people are $200,000 or $300,000 down in equity and they’re sitting on them or renting them out.
“They are mainly negative cashflow so they’re costing money each week for people to own them, I see so many people in the market at the moment that have that sitting in their portfolio costing them $200 or $300 a week and mostly they come to me and ask me my advice and my advice is either sit on it forever and it’s not going to come right or go interest-only and rent it out and pull through but if you’re facing a $200,000 loss and you’re feeding it $300 a week it’s probably not going to come right and you need to tear the band-aid off to a degree.”
He said holding on for years in the hope it would come right was often not the best plan.
“It’s costing you the ability to buy something else.”
He said some real estate salespeople had started sending listings of their most motivated vendors.
Cotality chief property economist Kelvin Davidson said activity among owner-occupiers moving from one house to the next had also slowed, which could indicate some owner-occupiers were hesitant to take a loss, too.
While first-home buyers were responsible for 27 percent of purchases in the first quarter, investors were about 25 percent and movers were 26 percent, compared to a normal share closer to 28 percent.
“Relocating owner occupiers at the moment are pretty quiet, so I think whatever decision criteria they use at the moment, they’re just deciding to stay put to some extent and when uncertainty’s high, when the economy’s looking a bit shaky, if you don’t necessarily need to move, you kind of stay where you are and we are seeing that in the figures.”
He said while people were often told there was nothing lost if they bought and sold in the same market, there could be a psychological impact.
“The mentality is a little bit different if you did buy at the peak and your first house was that top dollar price and on paper, at least, that equity has been eroded… it does change the mindset, at least.
“It’s a tricky decision for people who are thinking about moving and perhaps thinking it’s going to be hard to sell this house.”
Some might decide to rent it out instead, he said.
But he said most people would reach a point where they had to make a decision and then get on with it.
“You can go around in circles and stress yourself out. At some point, you’ve got to make a call and sort of live with it.
“At the moment, it’s, you know, if you don’t need to sell, it’s probably not necessarily the time to be selling. It’s definitely a tricky market for sellers and an advantageous market for buyers, no doubt about that.”
Opes Partners economist Ed McKnight said anyone weighing up whether to hold on to a property would need to work through a few steps.
The first was to think about whether they would buy the same property back with a 5 percent discount.
“It costs money to sell a house, often it’s around 5 percent of the home’s value, once you take into account real estate agent fees, marketing, staging and lawyers. If you have a $500,000 property, it usually costs $25,000. So a good framing is to flip it around the other way and say ‘would you buy this house if it was on sale’? If yes, you would, then hold on to the property.”
Then, people would need to think about whether they had something better to invest the money in, he said.
“If you don’t, it might be better to hold on.”
But if they did they would need to think about whether there were any exceptional circumstances, such as legal reasons that might make it helpful not to sell, or finance concerns.
“A real estate agent offered me $500,000 for one of my properties. It’s a good price in today’s market. But I said no. He couldn’t believe it. I said no because when the property was worth more I borrowed against it to buy another property. If I sold that property today, I could pay back the debt. But I couldn’t replace it. The bank wouldn’t let me, because I wouldn’t have enough equity. “
He said he said to people that it was possible to buy at different stages of the market and still make money.
“You can even buy at the top of a downturn, and sell at the top of the next downturn at still make money. But you often can’t buy at the top of the market, sell at the bottom and expect to make money.”
He said it was often the case that the best thing was to keep holding a property.
Although national values were not moving, he said, there were places around the country where prices had completely recovered, including Christchurch.
People should get advice from a financial adviser, he said.
Davidson said it seemed likely that the knock-on effects of the Iran conflict could keep the market subdued for the next few months.
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