The property market cycles of the past 25 years

by Alistair Helm in


When property prices are on the rise, the commonly asked  questions are usually based around how long can this bull run last?; are we in a bubble?; or have prices become disconnected from reality?

All are fair questions. However what is really interesting is the fact that these questions tend to float to the surface of the media precisely at the end of a property cycle. Property cycles are a historic part of the property market, here in NZ and globally. These cycles tend to last around 5 years and represent periods of either stagnant growth, accelerated growth and in some case declines.

In an article I wrote a few months ago I isolated the key periods of the property market identifying 5 periods tracking the median price data provided by The Real Estate Institute for over 25 years. Those 5 periods comprised 3 periods of rising prices and 2 of plateauing prices. The chart below reflects this perspective.

Interestingly I was sharing this insight the other day to a group of real estate colleagues as we reviewed the state of the current market. We are currently in a plateau phase - certainly in Auckland. The question I was asked of this chart, was as to the relative rate of increase during each of these periods as there is a perspective that property prices grew faster in the recent 5 years as compared to the 2002 to 2007 period and certainly as compared to the 1992 to 1997 period. I pointed out that this chart can be deceptive. The representation with a vertical axis of the actual median price can be misleading as a 100% increase from $100,000 to $200,000 as was the case in the 90's represented a dollar rise of $100,000; however a dollar rise of $100,000 in say 2008 from $350,000 to $450,000 only represents a 29% increase.

This got me thinking as to whether there was a better way to represent the trends of these cycles.

A couple of hours work has brought me to this new analysis of the property market cycles of the past 25 years.

Firstly I have chosen to use a different data set from The Real Estate Institute of New Zealand for analysing the market. I have chosen to use the House Price Index (HPI) - this data set is probably the most reliable and accurate data set for property sales prices in NZ. The Index which was developed by REINZ in cooperation with the Reserve Bank of NZ ensures that this price data set is not effected, as it can be by composition changes. That is to say if in a month a higher proportion of sales occur in a relative price band or suburb set this can skew the median price which is the most common and trusted method of sale price calculation.

I also decided that I would analyse two data sets namely Auckland, and NZ excluding Auckland. The fact is a single NZ data set is itself a compositional skewed data set as Auckland being c.40% of the market heavily skews the National picture which then becomes irrelevant for properties outside of Auckland. (More of this is a future article).

The chart below tracks the House Price Index from 1992 to date, for the data set of Auckland and Total NZ excluding Auckland. The Index is centred in 2003 at 1,000 points with dates before that being below 1,000 and dates afterwards being above 1,000. A figure of 1,100 represents a 10% increase over the base month in 2003. A figure of 2,000 being a 100% increase over the base month in 2003 and so on. The latest HPI data from REINZ for May 2018 had an Index of 2,883 for Auckland and 2,554 for all of NZ excluding Auckland.

This chart is very illuminating as it shows very clearly the plateau the Auckland market has been experiencing since reaching 2,800 in August 2016 - nearly two years ago. It also very clearly shows the extent to which the Index for NZ property sales price excluding Auckland shot away in the 2003 to 2007 period. The index to 2003 though in someways confuses the visualisation. I therefore decided to recalibrate the index it back to 1992, as the revised chart shows below.

Now back to that opening question - what are the key cycles of the property market of the past 25 years and how similar or different are they?

Here is a more detailed analysis of the price index data I have concluded upon for which I have identified not 5 but actually 7 phases of the property market over the past 25 years.

Now before you email or call me to ask what on earth I have created, let me explain. I have taken the HPI data and broken it up into these 7 periods or phases of the past 25 years which are tracked along the horizontal axis from 1992 to 2018. For each of the 7 phases I have identified the inflection point and recalibrated the start point to zero. So let me walk you through the 7 periods to help explain.

Period 1 - January 1992 to February 1993

Just a one year period which saw the price index grow by just 7% for Auckland and 7% outside of Auckland. This is subjectively an odd data set as there is no record of what happened pre-1992 and especially from the after affects of the stock market crash of 1987. Best to disregard this phase.

Period 2 - March 1993 to March 1996

Now this was a period of significant price growth. Auckland price index leapt 68% in just 3 years whilst outside of Auckland the price index went up 22%. This 3 year rise of 68% in Auckland is the fastest rise that has ever been seen over the past 25 years.

Period 3 - April 1996 to January 2002

This period of close to 6 years included the Asian Financial crisis and saw property prices stagnate. By the end of the period Auckland price index had risen by just 10% and the rest of NZ excluding Auckland 12%. Twice during that period Auckland prices dipped. By 5% in the first few months after April 1996 and then again late in 1998 dipping by 3%.

Period 4 - February 2002 to November 2007

This would be viewed by many as the most explosive period of property price growth. In the five and a half year period the property price index for NZ excluding Auckland more than doubled, rising 116%, far outpacing the rise in Auckland of 89%. All of this of course foreshadowed the GFC.

Period 5 - December 2007 to December 2009

For a full 2 year period the property market went into a funk. Prices went down. A scenario that many thought would never happen just a few years earlier, however property prices will at some point, just as with all assets; go down in value as much as they may go up. For Auckland the price index slipped 12% in the first 12 months before easing back to be down 3% by the end of the second 12 month period. For outside of Auckland the level of price fall was less severe, down 9% in the first year before clawing back half of that to be 5% down after 2 years.

Period 6 - January 2010 to January 2013

A full 3 years in which property price index rose just 2% outside of Auckland, spending the first 2 years underwater adding to the prior 2 year period making a full 5 years when properties collectively outside of Auckland failed to recover the peak they had attained in late 2007. For Auckland the recovery from the GFC came earlier with this 3 year period seeing a modest sustained growth up 18% over the 3 years.

Period 7 - February 2013 to date (May 2018)

This current 5 year period may in later years be revised to a 4 year period ending in August 2016 when Auckland's property price index peaked up 70% in that period of three and a half years, close on the same rate of growth seen back in the '93 to '96 period. At the same time for properties outside of Auckland the price index keeps rising, up 49% over this 5 year period, the second highest rate of growth of the past 25 years.

So in conclusion, property markets move in cycles and these cycles lead to price movements. It is likely, based on historical evidence of the past 25 years that we are in, or will be shortly be entering a plateau phase, typically these periods can last from 3 to 6 years dependent upon the background economic circumstances. As to when this period started, in the case of Auckland we may already be 2 years into it. In the case of the rest of NZ it maybe that we are about to see this plateauing start very soon. If there is any silver lining it should be seen that a correction that sees property prices fall is less likely and with a strong economy we are likely to see property prices take off again within the next decade. The only certainty is that it is almost always impossible to identify the infection point until after the event !


The challenges facing a new real estate agent

by Alistair Helm in


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I’ve been a fully licensed real estate salesperson for 3 months and I thought it would be interesting at this point to share my thoughts, experiences and insights. Valuable, I hope for others who may be thinking of embarking on this career path and also potentially a valuable reflection piece for those already established in this industry.

The fact is real estate is tough. There is a saying I remember from years ago and echoed at a recent training session “Real estate is simple, but by no means is it easy” – it is true; if a little overly simplistic. The fact is real estate in 2018 is a detailed process-based business with a high degree of legal requirements and obligations, more so each year. As I stated in an earlier article tracking the process of studying for the Certificate in Real Estate, there are 30 Acts of parliament that are studied on the course and all potentially have a direct impact on this process and need to be understood and adhered to by all agents.

However, long before you ever get close to talking to a buyer or seller and providing any form of service, the life of a newly licensed real estate is all about building a profile and making an impression so you can be seen at least as relevant. It’s all about building a brand. This is so key. The hard truth of this industry is that there is no shortage of real estate salespeople. Nowhere around the country is currently underserved by a real estate agent; and in the main cities there will be tens of capable, experienced and competent agents ready at the drop of a hat to list a property for sale. So this is the highly competitive marketplace into which you need to launch yourself and create a point of difference, and even before that, just get to be seen and known.

Real estate is a numbers game and in general terms the numbers (the odds) are not great. At any one time there are probably around 20,000 people in NZ actively involved in selling their home, that’s less than half a percent of the population – 1 in 200. However this group who are easy to target are not the audience you want to reach out to and engage in order to succeed to gain a new listing.

The target audience you want to address are the people in the stage before that. A very short window in which people who have possibly been looking to buy, get that confidence to say “right let’s going, let’s get our house on the market and let’s buy that new property” – I suspect that audience is fewer than 1,000 any one time and  with 14,000 agents in NZ today ready to serve that market that’s a highly competitive environment for a new agent to take on well-experienced and established operators. Imagine trying to identify that target audience in your local area, you are talking about a needle in a haystack; 1 person in 4,700 – virtually impossible. What you have to do is rely on connections and engagements. That is why agents constantly reach out through networks, make new connections, market extensively and make proactive approaches to everyone in their local area. For unlike established agents, new agents have no referral network of previous clients to rely on for future work or referral.

In my case from the outset I chose to focus and leverage on two clear points of difference when compared to my well established local competitors. These were my analytical capability focused on local property market trends and insights; matched to my unique and extensive experience in digital property marketing. That was the easy part, the hard part was to communicate these capabilities and break through the paradigm that sees people use the same agent time and again or rely on agent's presence (existing listing stock) as the arbiter of the decision of which agent to use.

As I will highlight in a forthcoming article this decision making process in selecting an agent, based on a survey I am currently undertaking is heavily skewed to established agents.

To substantiate my analytical capability of the local property market I am writing and publishing a hyper-local property report for Devonport each month. I maintain a detailed database of property listings and sales, enabling me to publish this report early in the month. This initiative is already bearing fruit with a growing subscriber base for the full email version of the report which enhances my brand awareness and my role and is supplemented through the publication of the abridged report in the local fortnightly local paper The Flagstaff.

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However passive marketing is as ever, a slow build. The massive hurdle that needs to be overcome to really kick-start an agent’s career is getting a listing; this is the mark of credibility. However the ‘chicken and egg’ conundrum kicks in – how to get a listings without having the credibility of a listing? This is where the numbers game comes back into play. You need to try a myriad of initiatives to see if somewhere, something bears fruit. As I described it the other day when sharing experiences with my fellow Bayleys newbies – it’s like growing crops, you have to sow masses of seeds and tend and nurture the ground, feed and water and eventually shoots will arise – it takes time, patience, fortitude and tenacity.

Here is a selection of the initiatives I have undertaken to date.

-       I held an local event with Bernard Hickey invited to speak about property and the economy. An excellent foundation with over 60 attendees

-       I personally door dropped over 500 flyers for Bernard’s event

-       I distribute my monthly property report to properties on the market. Sure these properties have an agent, but if the property remains unsold I want to make sure the vendors know of my presence should they decide to change agents in the future. This I see as classic reciprocity, I share the value in my report which has real contextual relevance and thereby establish my brand credentials

-       I target local streets where recent sales and listings have been active and communicate through personalised letters to all home owners with my property report and insight as to the local market dynamics. There is well know fact that properties tend to come onto the market when those around them are listed - a strange correlation that I think needs investigating!

-       I target private sellers offering my experience and advice on marketing, seeing if I can be of assistance to build trust and hopefully a future listing if they stumble in the process themselves

-       I contact owners who are undertaking renovations to discuss latest online valuations and the potential value-add of the work they are doing

This is sample of the tactics I have employed to date. To this you can add digital marketing through Google Adwords, Trade Me advertising, Facebook promoted posts. All focused to drive traffic to my personal brand website which I have tweaked regularly as I have reflected on what I can do to trigger the right engagement with my prospective target audience. I've also had produced a personal brand video so as to allow people to evaluate me as a person.

 

So what success so far?

– well as of today there is no listing with my name on it.

However there are germinating seeds which I am confident are soon to blossom. I have a client who will sell their home, however my task is to find them their next home which is challenging, but exposes me to the world of being a buyers’ agent which is a valuable experience. I also have three further clients for whom I am working to find them their next home and hopefully from that I may gain another listing or two. I am also working outside my home area when helping people as a buyers' agent which is surprising and valuable.

As I have said it is a numbers game. I should think that over this first 3 month period I have engaged and contacted over 250 people in my local area directly, plus an unknown number through other marketing. I’ve already invested over $12,000 in real cash in this new business of being a self employed agent which does not take into account the cost of my time everyday I work in this business, nor the cost of the time studying for the course and certificate.

The brutal fact is that more than half of all agents do not remain in the industry past 6 months, I am at the 3 month stage. I am sticking with it, I can see the future and I am confident that I can establish myself in this industry and deliver a professional service that is respected and valued. I’ll keep you all posted with future articles in the coming months.

and by the way...

I almost forgot this. If anyone tells you or you suspect that establishing yourself as a new real estate agent is a lifestyle choice, then tell them politely from me - if you are prepared to let that lifestyle consumes your every waking moment 7 days a week with no hope of a holiday then they clearly they are open to a new form of lifestyle.

Sure I choose to work where and when I like, but every moment you are not thinking about where the future business will come from, you will be worrying about where that future business will come from. Just some advice!


Technology could be the saviour of print media for real estate

by Alistair Helm in


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I find myself in my new role, as a licensed real estate agent in the Auckland suburb of Devonport developing a healthy pragmatism of the age-old decision as to the choice of print, or digital media when it comes to property marketing.

Ten years or so ago, I recall standing on-stage at numerous real estate conferences as the CEO of Realestate.co.nz confidently stating that at some time in the not too distant future our lives would have been so transformed by the evolution of digital media, that the humble newspaper would be dead. I foresaw a time when all forms of real estate advertising would be digital. Fast forward those 10 years and clearly that is not the case. Digital is certainly critical; valued by the real estate industry and consumers alike. However our daily newspapers still survive, somewhat depleted and sadly sullied by the race to the bottom, chasing advertising dollars for general advertising heavily driven by eye-catching headlines and lifestyle celeb stories.

However for the real estate industry print media retains a true relevance. As an agent, I value its ability to deliver passive buyers and the even more valued serendipitous buyer. The story can be easily told of buyers (unknowing it at the time) idly flicking through a weekend property supplement or Property Press at the local cafe or friend's house on a quiet afternoon, only to be enthralled by a property that they suddenly become captivated by.

The value of the print media lies in context, and the fact of strangely imprecise targeting - let me explain. The ubiquity of the newspaper places these adverts in close proximity to everyday news thereby potentially interrupting the daily read with an unexpected opportunity to present a property. It also acts as a reinforcement of a property advert to active buyers who may have seen the property online, thereby reinforcing its appeal and relevance, maximising frequency of presentation.

The imprecise targeting is a very interesting counter-logical argument. The very appeal and efficiency of the digital platform which enables for the specific search for 'this number of bedrooms' in 'this price range' in 'this suburb' is the same process that excludes a perfect property that matches all the requirements but is in another suburb that the buyer never thought about. In the case of Auckland, Wellington and Christchurch there are many suburbs that are close substitutes, yet people have fixed mindsets until they are exposed to a house they love the look of, only to find it is located in a suburb that was not on their list, but they go on to buy. That is the power of the print media. Or put another way that is an opportunity as yet not exploited by the digital media players.

So what other capability can print media offer and how might the very latest technology assist them?

Well I came across a very interesting post on Twitter over the weekend in praise of Apple's new ARKit. This is the latest software Apple has released at its recent developer conference to power Augmented Reality. Here's the tweet that peaked my interest and got me thinking about AR a little bit more - watch the embedded short video to get a sense of this capability.

So this example created the sense of an embedded sports video coming to life within a newspaper, leveraging the capability of an iPhone or iPad and the Augmented Reality software. Where you see a sports image and video on a newspaper page, imagine it being a property listing. Simply view the property page with your iPhone and the listing comes alive showing the video of the property or the slideshow for the property.

In someways this is just another iterative step that started years ago with URL weblinks on print adverts, progressed through QR codes and lately encompassed the NZ Herald Homes app that used image recognition that took the user to the listing on the web. All of these technology steps by today's standards seem clunky, especially when you see and imagine this in action (A crude representation made by me shown below roughly visualised).

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This really appeals to me. I have so often sat with people who flick through print publications for property listings and want that bit more information but end up frustrated by trying to find listing numbers and search for them on the Trade Me Property or Realestate.co.nz app.

This clearly is a golden opportunity for NZME's OneRoof - the perfect intersection of print and digital. They have the digital content and the print media platform - it'll be interesting to see how long it takes them to develop this and monetise it!

As for Realestate.co.nz and Trade Me - this presents an opportunity, but would require a partnership with a media company. The logical path being Property Press unless the appetite is big enough for Trade Me to make the ambitious move to acquire NZME, a relatively achievable acquisition when you see that NZME market cap is just $165m and Trade Me sits at $1,900m - something for Jon McDonald to think about as a parting shot of for the new Trade Me CEO.


The rise and rise and rise and rise of property portals

by Alistair Helm in


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The announcement last month of the acquisition of Zoopla the #2 property portal in the UK by Silver Lake Partners, the US private equity firm for £2,200 million (NZ$4,180 million) was a clear statement as to the confidence the financial markets and their investors have in the business models of digital real estate marketing.

Zoopla is not the leading UK digital property portal. That accolade goes to Rightmove which according to its own stats has 70% of the UK total audience for property searches. Zoopla was only launched in 2008. At that time Rightmove had been in operation for 8 years and had gone public two years earlier. Rightmove in 2008 was generating over £50m in revenue.

Zoopla though was never one to daunted and was ever ambitious, lead by the charismatic and driven CEO Alex Chesterman. Through the first 6 years, the business grew through acquisition of other real estate websites and property publications building a formidable position as the #2 player leading to the IPO in 2004.

The IPO valued the company at £990 million, half the then value of Rightmove. In a savvy move Zoopla offered real estate agent customers the opportunity to buy shares at a 20% discount; a smart move to side step a challenging move by a new industry owned start up OnTheMarket which required loyal agents to sign up to only one of the other commercial portals to try and break the duopoly. Those agents who did and hung on to their IPO shares will likely see a return of 177% in 4 years.

This stellar rise and exit for Zoopla is not an exception in the market of property portals. I thought it would be interesting to do some analysis of the key players around the world to see just how valuable these businesses have become over the years. Many of the leading portals have been in operation now for close on 20 years.

Restricting this review to the UK, Australia, USA and New Zealand is not truly reflective of the global market that sees many massively successful operators – the likes of Seloger in France, Scout 24 in Germany, Zap VivaReal in Brazil to name but a few; however I have observed and researched extensively these key businesses over the years, so feel comfortable commenting on their performance and strategy.

 

3 Leading Property Portals - NZ$30 billion in value

The top 3 portals in my opinion globally are the REA Group, operator of Realestate.com.au in Australia (and other countries), Rightmove in the UK and Zillow in the USA. Together these three businesses have a collective market value currently of over NZ$30 billion. Five years ago those same 3 portals had a market value of just NZ$11 billion. I have for reference included New Zealand’s own Trade Me for reasons that will become obvious as I proceed.

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This scale of growth is spectacular. What is even more spectacular is the relative rise in the market value of these companies measured against their own domestic market index. I have simply indexed the growth in share price to the index at June each year.

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The performance of the REA Group is stunning, eclipsing the performing the ASX market by close on 4 times over the past 6 years. Zillow doubling the Nasdaq index performance and Rightmove outpaced the FTSE 100 by more than double. Sadly though our own NZ digital portal of Trade Me with a broader portfolio than just property has not attained such stellar growth and has fallen behind the NZX index over the same period achieving just half of the market index growth over the past 6 years.

 

Australian international benchmark

The REA Group is now not just an Australia real estate digital portal it has operations in Asia and now the US. This latter move driven by its largest single shareholder News Corporation (owns 60% of REA Group) which acquired the #2 property portal in the USA (Move.com) in partnership with REA in 2014.  However in terms of profitability at EBIDTA level the performance of REA relies almost entirely on the profits of Realestate.com.au, and they keep rising year-on-year with revenue growth in the last financial year of 16% - this is a 20 year old company that added A$92m of incremental revenue last financial year to total A$671m.

REA Group though are not alone in carving out a global powerhouse performance to better all comers, they are actually part of a triumvirate of Australian digital behemoths – REA Group, Seek and CarSales – each are the global benchmark for their category of property, jobs and motors. By no small coincidence the 3 core classified platforms of our own Trade Me.

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Just like the REA Group, Seek and CarSales have significantly outpaced the ASX market index over the past 6 years, close to doubling the ASX for CarSales and higher for Seek.

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Financial Indexing of Portals

Some further financial indexing provides valuable insight into the relative performance of these global leading portals for property and other classifieds.

In terms of absolute market value the comparison is staggering. REA Group still remains the most valuable property portal keeping Zillow at bay, and a significant 50% more valuable than its jobs portal partner and 3 times the value of the auto portal.

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The inclusion of Trade Me Property is purely as a means to compare the property operation of Trade Me with its peers in other countries. I have purely used the % representation of property revenue as a surrogate for value representation. Sure I know full well that a digital business based on a 4.7 million population of NZ is never comparable with the population of Australia, UK or US; I'll come back to that benchmark shortly.

When it comes to true grunt, any financial expert will tell you that value is only a reflection of profit and this is where the appeal of digital portals comes to light. The EBIDTA margin of these portals is impressive … if you turn a blind eye to Zillow.

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Rightmove is the king of money making – for ever £1 it receives as revenue it spend just £0.27 on running the business allowing it to reinvest 73 pence. Trade Me shows its might just as effectively, with a very impressive 58% EBIDTA margin, ahead of REA and its Australian counterparts whose 31% and 45% are still worthily impressive margins.

This metric of margin is critical in comparing digital portals. The very appeal of digital businesses is scale. The simple principle being that the core cost of a digital platform should cost no more to service for a million users than for 10 million or 100 million. That is why digital businesses can generate such EBIDTA margins. However this is where things get interesting. Why is it that Rightmove serving a UK market of 66 million people can achieve 73% EBIDTA margins whereas Zillow serving a 326 million population can barely scrape 1% margin? Equally how can Trade Me serving a domestic only market of 4.7 million hope to deliver 58% margin?

The answers to these two questions are complex and not directly related. The US market is nothing like Australia, UK or NZ when it comes to property marketing, there is no such thing as paid for subscriptions for listings or vendor paid marketing; leaving Zillow to monetise agent advertising and client leads.

As for Trade Me the very impressive performance of 58% margin may possibly be part of the reason that its market value has not attained the stellar rise of its peers, as a function of stifled ambition and lacking investment courage?

The final metric I will provide is the relative performance of these portals on a per head of population basis.

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Here we see the same stellar performance of REA extracting a market value which equates to over $500 per person in Australia. Trade Me as a group delivers an impressive $406 per person in NZ,  but the truer comparative metric is the equivalent market value of the property sector (based on share of revenue) delivering a market value of just one tenth that of REA. Having said that the surprise is the relative performance of Rightmove at $130 per person in the UK. This potentially portends to the view that the upside for Rightmove is still significant, although the danger is made in assuming the UK real estate marketing landscape is similar to Australia which it is not.

The overriding clarity that these data points highlight is the enormously successful digital property portal businesses that have been developed globally over the last decade, but more significant is the powerhouse operations of digital portals across the Tasman over the same period. What can we as NZ’ers somehow learn from this and more importantly what can Trade Me learn to help it chart a more dynamic path to growth as a true NZ icon in the digital portal space?


Are we really facing a “serious shortage of properties for keen buyers”?

by Alistair Helm in


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It's funny sometimes when you look at a piece of research which on the face of it looks to be enlightening, providing as it does new facts and insight; but when dig a little deeper you discover that it merely reinforces known facts.

Such was the situation this week when Realestate.co.nz published a research study by Horizon Research of consumer expectations of buying and selling in the coming year. I was at first somewhat confused, as the report was completely buried in the monthly NZ Property Report. I was not sure that they had clearly thought through how they were presenting the data, however by tuning out the monthly stat charts the research data findings seem at first eye-opening.

The research results show that 6.4% of the adults 18 years or over surveyed are definitely looking to buy in the next 12 months, but only 2.8% of people stated they are definitely looking to sell in that same period, says realestate.co.nz spokesperson Vanessa Taylor.  

This equates to a shortage of around 3.6% of homes across the New Zealand marketplace, representing a significant number of properties currently not on the market, she says.

Even taking into account new builds which are underway and not included in these numbers, there will be an increasingly serious shortage of properties for keen buyers.
— Vanessa Taylor - Realestate.co.nz

Wow – 6.4% of adults definitely going to buy; but only 2.8% going to sell! As stated that would seem to be a “serious shortage of properties for keen buyers”

The danger as ever with statistics is that seeing one set of data in isolation can lead to misinterpretation. Sure, in this survey 6.4% of adults are going to buy vs 2.8% are going to sell. On the face of it, it certainly seems serious and due cause for alarm, especially when we are constantly being told in the media (and by politicians) that we need to build more houses to solve a housing crisis. But hold on a moment. Step back and ask what is the context of this research data. We need to ask how have results changed over the past year or the past 5 years? Are we seeing a growing trend or a declining trend? After all one data point does not tell us everything.

The beauty of the internet is that you don’t have to hound people to get them to provide the data, the data is accessible. Horizon Research has been undertaking a Housing Supply and Demand Survey since 2010 on a fairly frequent basis and here are the results.

So it would appear that the data for May whilst perceived to be high was actually down on the previous report from October last year, when the level of definite buyer activity was 9.8% and seller intention was just 2.5%. That’s 1 in 10 adults saying that they were going to definitely buy. At the same time just 1 in 40 adults said they were going to definitely sell!

How did I possibly miss that piece of news?

There is no denying that the chart very clearly shows an ever growing divergence between buyer intent and seller intent, however the question has to be asked. If as the media release this week states … will there bean “increasingly serious shortage of properties for keen buyers”?

How could this be true? Especially if we have witnessed this divergence for the past couple of years. If it were as true as the statement leads us to believe, then surely we would be seeing rampant price inflation as this pressure on supply would seem to portend?

To answer this key question we need to separate the buyer and seller data in the research.

The Buyers

First let’s deal with the data of buyer intent. The latest May research states that 6.4% of adults definitely intend to buy in the next 12 months. Let's work through the numbers. In NZ there are 2.7 million adults; being 60% of the population by age between 18 and 65.

The research states that the findings based on a sample size of 1,345 adults from a nationally representative panel show that 6.4% state that they are definitely going to buy a property in the next 12 months. The average household composition of adults in NZ is 2.02 adults per household which equates to 1.34 million properties. This reflects the 85% of private property occupied by adults under 65 years. If you apply the 6.4% proportion from the May research to this total of 1.34 million properties you arrive at the figure of 85,700 properties definitely going to be bought in the next 12 months.

A total of 85,700 properties being bought in the coming year is in fact a perfect estimate of the market. In the past 12 months volume sales as reported by the Real Estate Institute were 74,600. Sales volumes have begun rising from a low of 73,500 in the 12 months to December last year. So I would say that the research is bang on as an estimator of market demand, providing an accurate guide as to the likely pick up in sales volumes for total 2018/19.

What is also interesting in extending this calculation; is that the historical research carried out by Horizon Research shows that the past 8 years data correlates quite closely (with just a few outliers) with the market trend of moving annual total sales as highlighted in the chart below:

The Sellers

So how can the divergence of buying intention from selling intention be explained? How can it be that what we can validate that 6.4% of adults definitely intent to buy, but clearly far more than 2.8% definitely intend to sell? In fact we can I judge with confidence say that 6.4% of adults will sell in the next 12 months.

Herein lies the answer, in my opinion.

Existing homeowners go through a process. A process that ends up with the purchase of one house and the sale of another, however this process from a psychological perspective does not begin with a rational intent to sell. It starts with an intention to buy.

Selling a property is a means to an end; the end being the next home. It is a functional process, not an emotional decision process – the emotions lie in the expectation around the next home. So when asked in a survey the intention to sell, the typical adult probably under-reports, largely due to the anxiety and expectation surrounding the process of selling. That is my opinion.

So I don’t support the view that we are really facing a “serious shortage of properties for keen buyers”, we are simply seeing the normal property market at work.

This thinking is very enlightening to the processes of real estate industry in general and particularly to the marketing strategies adopted by players within the industry. I highlighted recently in my article about the likely launch of Better Homes and Gardens Real Estate how their brand positioning would not play out so well in NZ as the market here is a vendor (sellers’) market and their brand is all about emotional inspiration and lifestyle.

The fact is NZ real estate companies largely focus on the processes of selling and buying linking the brand to the "For Sale" event, but I have not seen many (if any) real estate companies, nor for that matter any real estate websites position their brand around the emotionally engaging process of discovery, in the process of finding your next home.

 

 

 

 


Does the iBuyer business model represent true innovation in real estate?

by Alistair Helm in


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Last week, a new listing came onto the market in the US – a property for sale in Chandler, Arizona. A 4 bedroom home with a price expectation of around NZ$600,000. Not that interesting you would have thought given the fact that probably close to 20,000 new homes come onto the market every day in the US.

What makes this home different from tens of thousands of others is that the owner of the property is Zillow. That is Zillow; as in the largest real estate website in the US – a property portal.

Think about that for a moment, this would be akin to Trade Me listing for sale a property owned by Trade Me having been bought by Trade Me from a Trade Me member!

Let’s be clear this is not happening in New Zealand. At least not yet, and to be honest I don’t think it is something that suits the New Zealand market. However before getting into all that, let me explain what is going on here.

A new segment of the real estate market emerged about 4 years ago in the US. The ever optimistic, cash rich and somewhat over-hyped tech sector turned its eyes, and its investment dollars to the real estate industry and asked the question – “why is it so hard to sell a property in the US, and why does it take months?”

The answer, and therein the problem, lies in a myriad of archaic systems for legal title-management and exchange; and the equally complex processes for mortgage origination. Both of these in theory being digital processes, naturally the tech investment sector said they could fix and in doing so create the opportunity for a viable business model to arbitrage residential property. This new segment of the industry that has emerged has been dubbed the iBuyer market.

The pioneer of iBuyer was OpenDoor, with the fast follower – Offerpad  and now Zillow with Instant Offers, who far from limiting themselves to just being a real estate website, sees value in this real estate service which can leverage their expertise and knowledge base around property data and valuation modelling.

The business model for iBuyer is simple. A homeowner looking to sell goes online and enters their property details, in what is a matter of hours in most cases, the company comes back with an offer to purchase the property. The offer is at around market-value based on their proprietary algorithm of an Automated Valuation Model (AVM). The seller can literally confirm acceptance and choose a completion date and the sale is then completed, and payment is made on the allotted date. There are naturally legal conditions and inspections as well as deductible fees, but pretty much this has to be the fastest and simplest way to transact real estate. So in theory, you could decide to move and within a week or so you could be moved, cashed up and onto a new life!

The process then moves into top gear with the company undertaking a fast and efficient cosmetic makeover of the property in order to get it back on the market in a matter of weeks for a price that they (and their algorithm) feel is the right market price.

The business model of these iBuyer operations is to act as the sellers’ agent, and the buyers’ agent, as well as the property developer; with the clear intention of flicking the property as fast as possible with a reasonable margin on the purchase price, this they seem to be doing.

With the full sales commission charged to the seller, as well as their representation as the owner for the on-sale, the business model allows for a satisfactory margin through the process as well as any improvement margin.

The core value proposition for this business model is speed and the associated removal of stress which has universal appeal. Just recently a survey undertaken by the Real Estate Authority here in NZ found that 35% of sellers found marketing of their property involving the open homes, the toughest part of the process. The iBuyer service removes this completely. It is critical to appreciate that the core value proposition is all around adding value; and has nothing to do with saving costs or a lower priced offer (a critique I made recently as to the only other aspiring innovations seeking to disrupt the real estate industry).

Whilst not a perfect analogy, the market for used cars is somewhat similar. If you want to trade for another car you can just sell to the dealer for cash or trade in your car, so in theory this is the process for your house – at least in the US at this time.

There are elements of the iBuyer business model that are a true disruptions of the real estate process enabled by technology:

  1. The automated valuation model has become a commodified capability, here in NZ as well as most every country of the world, empowering these companies with the core market information, historically tightly held by real estate professionals
  2. The financing of the properties that these iBuyer companies take on, is enabled by technology as they can leverage the necessary debt financing through whatever financial market structure that suits and is available at the time, packaging the portfolio of properties on-hand thereby optimising lending options
  3. Marketing directly to prospective sellers through targeted marketing and in so doing capturing the selling agent commission
  4. Utilising Internet of Things (IOT) to revolutionise the home viewing process. Once a property owned by the iBuyer company is put on the market, prospective buyers can register and access the property remotely through an app that allows unaccompanied viewings with remote security monitoring

These collectively add significantly to this technology-enabled improvement to the process of real estate, and at first sight would appear to be threatening to the traditional real estate profession. However these iBuyer companies are smart to ensure that their long term ambitions to establish a viable and significant market position are not jeopardised by off-siding the industry of agents. Their business model engages agents with a seller and buyer-side commission structure, positioning themselves to be seen as a fellow competitor in the market rather than a looming destroyer of the market process.

It is important to note that the Zillow iBuyer model is somewhat different to both OpenDoor and Offerpad in that Zillow are actually not purchasing properties in their own name, they are facilitating the market-making between willing sellers and financial investors. They are operating in much the same way as they do with their core business in market-making between buyer - agents - sellers - agents. In this way they are keen to avoid the accusation that they are competing with their customers - real estate agents, especially as they lay out the option for sellers to choose to turn down an 'Instant offer' and sell through an agent.

So having identified what these iBuyer companies provide in their business solution the next key question is – will they succeed?

I believe the answer is yes, but not in the sense of a massive disruption to the overall market. This is key, and as any investor pitch-deck will show, even a very small percentage share of the real estate transaction market in the US represents a significant business opportunity. The estimated value of this market is somewhere around US$60 billion so a mere one tenth of one percent would be US$60m turnover.

There are 2 key issues that the iBuyer business faces that I believe are going to restrict the market opportunity. Firstly there is an inherent risk related to the the volatility of the property market and the downside risk of an iBuyer company being saddled with a large inventory they cannot sell without taking a loss on sale, should the market turn down.

Then secondly there is the complete reliance on the automated valuation. The business simply cannot possibly scale if they were to rely on an army of inspectors. As a consequence their risk profile means that they will only offer the solution to what can be thought of as homogeneous houses. This is easily seen by the markets in which they currently operate – Phoenix, Las Vegas, Charlotte North Carolina, Atlanta, Nashville as well as couple of others in the case of OpenDoor. These markets have a growing suburban belt of new homes and the typical house managed through OpenDoor is recently-built homes with a price around the median sale price between $300,000 and $600,000. This is smart. These houses are a commodity that has a low risk of not finding a buyer coupled with a high confidence factor for automated valuation.

In the US this subset of the market still represents a sizeable market opportunity of around $10bn a year. For New Zealand the business model is unlikely to offer such a lucrative market opportunity. Firstly, very little of NZ housing stock falls into the category of truly homogenous - whilst there have been large scale new housing developments in Auckland that mirror the chosen US markets that have been the target of OpenDoor; and undoubtedly there will be more built in the coming years. This market segment will be small, too small for a company to achieve scale. Secondly the NZ market does not experience the same pain point that the US market suffers from, as a consequence of archaic and protracted transaction process. A NZ property can be marketed and legal transaction completed within weeks if necessary, certainly legal unconditional-sale is achievable within a month from listing day - something not achievable in the US, until now.

As to the question posed earlier, could Trade Me offer this solution? - they could, especially if they facilitated a market-making environment with verified investors. By following the Zillow playbook they could very nicely then generate a leads-business for agents of ready sellers. That would be a smart solution that might just see Trade Me advertising a property for sale that Trade Me facilitated the agent-sale of, from a Trade Me member to a Trade Me member, financed through a Trade Me member and managed by a Trade Me real estate agent.


Better Homes & Gardens – a new name on the real estate high street

by Alistair Helm in


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Recently I wrote about the new entrant to the real estate digital advertising arena in the shape of the NZME site OneRoof. It’s many years since we saw a portal vie for a place up against the two established incumbents; so it is with real estate companies in the NZ market. The fact is, there have been very few new additions to the brand line up in the past decade or two. I can count just 3 – The Joneses, who crashed and burned in 2008; then a couple of years later in 2010 Mike Pero, and at pretty much the same time Sothebys International. Both of these trading on very well-known brands – one kiwi; one international.

So we now we have the news is that there is to be a new brand to take on the Australian and New Zealand real estate market – Better Homes & Gardens Real Estate. A brand that certainly has contextual relevance, but doesn’t come with any heritage in this market or across the Tasman. First and foremost it's a media brand, a lifestyle brand; most recognised for the well-known magazine and TV channel. The key question though is, can it carve out a place in the real estate high street in New Zealand?

To answer that question you have to dig a little deeper behind the name to look at the organisation that is driving it.  

Better Homes & Gardens Real Estate began life in the US in the 1970’s as a classic brand ‘line extension’ from the original magazine which dates back to the 1920’s. The magazine has been a stable of the Meredith Corporation; a major media company that earlier this year acquired Time Inc for US$2.8bn. The operation of the real estate business ran for 30 years under differing operational management before the brand name was licensed to Realogy, the largest US real estate conglomerate. Realogy Holdings Corporation operates a number of brands in the US and International markets including Century 21, Coldwell Banker, The Corcoran Group and Sothebys International. It is a huge corporation with over 190,000 sales agents in the US and around 100,000 in more than 116 countries around the globe.

The core principle of Better Homes & Gardens Real Estate is to leverage the essence of the parent brand that speaks to people’s aspiration to a lifestyle epitomised in the magazine and then capture that dream through the process of buying or selling a home. This promotional video on the brand's US website embodies this brand principle.

The company has grown to a significant scale in the US market over what has been a fairly short period of time. A lot of the credit for this success can be attributed to the founding CEO Sherry Chris, who I have seen at numerous industry conferences over the years. She is an impressive individual as well as real industry icon. She has driven innovation and technology through the organisation to create a tremendous business.

So that’s the background to this company and this brand; however as to the local NZ or even Australian market opportunity I am sceptical. The US real estate market is so different to most other countries; fundamentally due to the nature of the dual agent role in the transaction process. An agent representing the buyer and a separate agent representing the seller. This for me is why Better Homes & Gardens Real Estate (BHGRE) was adopted so quickly in the US – the buyer side service is inherently lifestyle and aspirational as that is how buyers approach the property process, full of dreams of their new home and BHGRE plays on the media channels to sell this service. However the seller side of real estate is always transactional and seldom embodied by aspirational lifestyle. The stark reality of the seller side of real estate is that sellers face everyday challenges brought about by life changes, be they financial or functional.

The NZ and Australian markets are seller side agent markets and are transactional process driven, even if the outcome they seek is aspirational the sell process is a means to an end. Buyers living in their aspirational mindset are largely left on their own to undertake a self-service process where the property portals take on that role as their aspirational guide. Interestingly as I write that comment I realise how poorly the incumbent NZ property portals deliver on that role.

Now add to that transactional process requirement of sellers' agent role, the significant consolidated operational power within the New Zealand market which I recently analysed where more than half of all offices operate under one of 5 brand banners along the high street, and you have a playing field that does not augur well to the brand positioning of BHGRE. 

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The reality of the real estate industry unlike other consumer services is that a new entrant doesn’t just set up shop, hire staff and start a business. The core of real estate industry, right at the coal face, is individual agents (each one a unique brand) as self employed contractors, that is how the industry works. Any new operation such as BHGRE will have to entice such agents to join their brand and leave their existing brand. It is not only agents, but business owner / licensees who will have to switch brands to enable this new entrant to get a foothold. This situation is not new in this industry, as I have recently commented Ray White has made significant gains by getting other business owners to switch and so it happens with other brands given the franchise nature of the industry.

The only potential entry for BHGRE as I can see it, is to be found in the fact that BHGRE is a part of the Realogy stable of global brands including Century 21 - a brand that in NZ has slipped down the rankings with now around 50 offices. It might just be the base that the franchise holder in Australia and NZ of both Century 21 and BHGRE: Charles Tarbey could use to transition the Century 21 offices to launch BHGRE in NZ. Time will tell and as the article cited states the plans for NZ would follow Australia probably in 2020.

So potentially this could be good news for some business owners and top performing agents as the enticements by a new entrant may be sufficient to make the switch, but so might the competing offers from the major 5 brands. As we know time will tell, but I for one would be surprised to see BHGRE becoming one of the top 5 players anytime soon.


Financial year report - NZ real estate industry FY2018

by Alistair Helm in


The end of the financial year-end provides a perfect time for any company or industry to reflect on the year just completed, and look ahead to the forthcoming year. So I thought it would be of value to undertake such an analysis for the New Zealand real estate industry.

In the financial year ending March 2018 exactly 73,000 residential transactions were completed by the industry, with a turnover of close to $48.5 billion. This I would judge to be called a ‘good’ year by the industry, at least if you consider the last 10 years or so – by no means the best year but equally far from the worst. That latter record would undoubtedly be the 2009 financial year when just 55,000 transactions were completed for a turnover of $22.4 billion. Interestingly the best year of the past decade or so would be last year; for although slightly fewer transactions were completed in 2017 than 2016, the transaction turnover hit a record of $55.2 billion from 87,630 transactions.

The real estate industry is large – employing just over 15,000 individuals who as recorded by the Real Estate Authority (REA) held active licenses. Supporting these active agents would be almost as many in support roles; as well as those in service industries related to the process of real estate sales.

The industry continues to grow and attract new individuals. Over the past 2 years the number of active licenses has grown by around 3% per annum, however the number of new licenses issued fell by 15% in the past year with just under 2,000 new licenses issued in the year to March. That number matched to the number of active licenses demonstrates the churn in this industry. It is well known that close to half of all new entrants to the industry give up before their first anniversary contributing to this overall churn of around 15% per annum.

When it comes to the structure of the industry from the perspective of the major brands, the picture is one of consolidated strength among the recognised high street brands, with more than half of all offices displaying one of the six major brands. Assessing these major brands based on number of offices, Harcourts and Ray White take the top two spots with 180 and 166 offices a piece, far distant to the scale of the next 4 who are close rivals at the level of 60 to 70 offices around the country.

The fact is, the high street is changing and the physical presence of real estate offices is nowadays less a method of lead generation, than it is a branding exercise. This is most evidently shown by the fact that the local real estate office these days will more likely resemble the reception area of a smart lawyer or the ubiquitous local cafe, as compared to the the cluttered desks and reception counter of a decade or so ago. However much the style and design of these offices change, the industry is not immune to the fact that high street presence is a costly form of marketing and the past decade has seen a contraction of their presence.

A decade ago there were close to 1,500 real estate offices around the country, today less than 1,200. This reduction has not though been uniform. Harcourts have certainly retained their leadership with a reduction of less than a dozen offices. Ray White has grown significantly though a combination of new openings and brand switching, most significantly the Re/Max Leaders Group in Wellington and the recent switch of Austar Realty from LJ Hooker in total adding 24 offices as Ray White has grown to edge within 14 offices of Harcourts.

A number of brands has seen significant declines in offices numbers over the period. The Re/Max decline was significantly impacted by the Leaders move to Ray White. First National has declined from 78 to 42 offices, and the combined operation of Harveys & LJ Hooker which merged in 2010 has gone from 111 offices to 76 today.

Conversely on the rise, has been Bayleys up from 60 to 72 and Property Brokers which a decade ago was a regional operation in the Manawatu and Hawkes Bay and now spans across multiple regions of both the North and South Island, more than doubling offices numbers to sit at 41 today. 

The only new entrant to the market has been Mike Pero which has 54 offices. Mike Pero's operation has leveraged their franchise model to expand fast to create this infrastructure however their office support around 170 salespeople equivalent to just over 3 per 'office' whereas across the whole industry the average office supports 12 salespeople.

Whilst the number of offices speaks to high street brand presence and undoubtedly does drive the performance of these brand operators, the scale of each brand in the market is more rightly judged by the number of salespeople or better still transactions. Whilst not universally published, the major brands do make reference on a fairly regular basis as to the scale of their business by transaction, by this means it is possible to make informed estimates as to the scale of each operation. What I find interesting is to take that collected and intuited data and analyse the 'operational efficiency' of each brand by the measure of transaction per office as the final chart below details.

The telling insight this brings, is that Ray White and Harcourts manage very similar levels of transactions per office - around 90 to 100 per annum, whilst Barfoot & Thompson and Bayleys achieve a higher level in the 130 range per office per annum. The average across all 1,200 offices is 74 transactions in the past 12 months per office, with the smaller brands matching the independent operators at around the level of 1 transaction per office per week.

 


The Auckland quarterly property review - Q1 2018

by Alistair Helm in


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Having summarised the broad New Zealand property market for the 1st quarter of 2018, it is critical to examine separately the Auckland property market.

Auckland is a very different market to the rest of the country by fact of scale and greater international influences. Additionally Auckland tends to be a bell-weather to the broader regional market, thereby investigating the local market trends provides insight both for Aucklanders and as a future indicator for the rest of the country.

As far as volume sales are concerned it appears from the latest March data to the end of this first quarter of the year, that we seem to have bottomed out. Sales of properties have been falling for close to two and a half years. Seen on a 12-month-moving-total the Auckland market peaked in October of 2015 and has fallen in volume terms consecutively by 37% since then to the current March 12-month-total of 21,350 sales. We do seem to have avoided dropping below the 20,000 sales a year threshold experienced through the GFC and the rebound in 2011.

The chart below tracks the monthly variance for a year-on-year comparison of Auckland property sales for the past 18 years. It is clear looking at the chart that the market experiences significant volatility in sales movements in Auckland, up over 50% year-on-year at times and equally falling by similar variances. Since that peak in October 2015 the variance has been consistently negative with just couple of months where there was a small correction. As noted in the wider NZ analysis the March month this year did see a surprising fall year-on-year in sales but this is not unusual as can be seen in prior market cycles of the past 18 years.

As I have mentioned many time in the past in the context of property market commentary, a critical issue in NZ analysis of property sales is the number of dwellings and how that has grown over time. In the case of Auckland, hardly a day goes by when the media does not refer to the 'shortfall in housing' affecting the city - whether that shortfall is 20,000 or 50,000 the fact is Auckland has grown at a staggering rate over the past 25 years. 

Based on the trending of the last census data it is likely that Auckland now has surpassed 500,000 dwellings - this is up from around 445,000 10 years ago. This growing level of new dwellings naturally will be a factor in assessing the true level of property sales. Tracking this over the past 10 years further reinforces the market view that we are bottoming out of the cycle at a low level of 4.3% of all homes being sold in the past 12 months, this compared to a 10 year average of 5.4%. The broader NZ position interestingly is that 4.5% of all homes were sold in the past 12 months as compared to a 10 year average of 4.7% emphasing that the Auckland market has fallen in volume terms further than the rest of the country.

As I have often stated I am of the belief that watching closely the sales volume trend is a better indicator of the state of the property market than following the median price, as price is largely a reflection of the state of the market rather than an indicator. This is best demonstrated by the chart below. This analysis which I introduced a couple of months ago tracks the clearance rate to the median price movement. Clearance rate is the relationship between the new listings coming onto the market in a 12 month period of and number of sales.

This latest update to the Auckland chart of Clearance rate to median price shows again evidences the bottoming out in the clearance rate and the start of some degree of increase in the past 4 months, whilst at the same time the median price variance year-on-year is showing an arresting of the fall seen in the past 2 years with the current situation seeing median price level or slightly down compared to this time last year.


The NZ quarterly property review - Q1 2018

by Alistair Helm in ,


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The first quarter of 2018 is now behind us and with it the final month of the financial year. It is interesting as an aside that this last month of the financial year, through no direct result of any promotion or marketing by this industry towards the consumer, typically ends up being one of the biggest sales months of the year. Sure it's influenced by seasonal considerations but their is no denying the fact that incentives within the industry do bring more properties 'across the line' into March than would be the case without these incentives.

With that as a backdrop it is a good stage of the year to examine the state of the market from the available published data from both Realestate.co.nz and REINZ.

I always like to start any property market analysis with sales volumes as this for me is the most important driver. The Median Sales price whilst the headline of all property news articles is largely an outcome of the market, the result of the pressures of the market; but the number of transactions indicates the real health of the market.

Across the whole of the country, sales volumes have been weak now for what is close on 2 years. As the chart below shows, the market year-on-year variance dropped into negative territory nearly 2 years ago in July 2016. 

In the middle of last year after 12 months of declining sales we started to see the rate of decline ease off, and as we reached Christmas, year-on-year sales were pretty close to level with prior year. This was followed in January and February of this new year by very slight rises year-on-year, but then March seems to have hit us and we are back year-on-year to a 9% decline. This is why I made the comment earlier. I had expected that March would have been stronger than it was. For whilst comparing the same influence on the market last year, 9% decline after what has been very low sales volumes is surprising and has that feel of a 'late spring frost' arresting the early new spring growth.

Yet despite this 'snap of frost', it is my view that we are still likely to see sales volumes rising through 2018 to end well ahead of 2017. The most recent 12 month total sales volume to March was exactly 73,000 as reported by REINZ. This level of sales is almost identical to the low point of the last cycle in October 2014 before the upswing in sales that lasted for the next 18 month as sales rose to a 12 month moving total of 94,000.

When examining property sales over a long term perspective, a key influence that has to be factored into the analysis is the core underlying growth in the number of properties across the country. Twenty five years ago back in 1992 when REINZ started collecting and publishing real estate statistics there were just under 1.2 million properties across the country and in that year total sales amounted to 63,000. At the end of 2017 there were an estimated 1.63m properties, an increase of over 435,000 properties, up 36%, whilst total sales in the 2017 calendar year was 73,557, an increase of less than half that of the growth of number of properties. Property sales have gone through around 8 cycles in those 25 years reaching a all time high of 121,777 in April 2004 and an all time low of 53,463 in February 2009.

These highs and lows of the market have represented, a proportion of sales to actual dwellings with a high of 8.4% and a low of 3.5%. Across the past 25 years the average has been 5.7%. Over just the past 10 years the average has been around lower at 4.7% with the current level of the 12 months to March 2018 at 4.5%, certainly below the 10 year average and the longer term average. This further reinforces the view that the market is lower than would be expected.

Complementing the sales component of the market assessment, I am keen to examine the latest data of the clearance rate. This metric I introduced back in January when assessing the year-end data for 2017. It is the measure of sales as a % of listings applied to the latest 12 month moving total.

The picture for clearance rate which as I demonstrated back in January tends to track pretty consistently to median price movement over the years. Looking at the most recent 3 months the clearance rate appears to have arrested its decline and similarly the annual median price movement has stablised at around 5% allowing for the monthly volatility.

Taking all these data points into consideration it looks to me that we have reached the bottom of a cycle of property sales. Given the scale of the current residential dwellings at a level of 1.63m, a sales level of 70,000 is a low point and over a forthcoming period of what maybe 2 to 3 years we will likely see sales rise up again to an expected level of around 90,000. This assumption is predicated on the belief that a sufficient flow of new listings will come onto the market to facilitate this lift in sales, for without this, the latent demand will be unsatisfied and that has the potential to stall the market. 

 


So.. should I wait to list in the Spring?

by Alistair Helm in


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Sitting in a recent sales meeting of our local office the other day, the discussion came around to the pipeline of forthcoming listings. The one consistent comment emerging from around the table was the client desire to "wait for Spring". I have long heard this view that Spring is the best time to sell, but is it really?

Spring may well be the busiest time for new listings, but is such a cluttered and contested market the best time to grab and fight for attention?

This question and the data to support the opposite view is something I have written about in the past, but I thought it was about time to revisit this matter for the benefit of buyers, sellers and my new colleagues in this real estate industry.

From a statistical point of view the way to assess the seasonality of the property market is to create a picture of weighted average sales for each month, based on the historical sales by month. This is the approach I have taken in the past. However when updating my spreadsheet it did strike me that this approach was somewhat "rough & ready". After all, months have different number of days, especially when you allow for the major public holidays. So I factored this in to created a weighted average sales per day for each month and then expressed this in the chart below as to the variance that each month represents as compared to a "normal month".

This charts shows that the most active month of the year in terms of sales is March with January the least active. October is the month which could best be described as 'average'. The overall trend is that the most active sales period is February to May. The winter months through to September are quiet and then November comes storming back before December sees sales tail off. Nothing surprising in this I would have to say. As a note this data is total NZ sales from the full data set of Real Estate Institute statistics from 1992 to 2017.

In doing this statistical analysis, as very often happens I questioned the data to see if once you broke up the data for the full 25 years into separate 5 year periods, if this pattern has changed in any significant way?

This then is the same analysis but showing each of the five 5 year periods from 1992 to 2016.

This analysis I find very interesting (but maybe I am the only one!) - the key months for me are January, May, July and December as these to my mind are demonstrating a valid statistical trend.

January is very clearly becoming a much quieter month. In the most recent 5 year period (2012-216), a period in which sales have been buoyant, it has been close to 30% quieter than a typical average month. Why? Well it could be a factor of lifestyle and people really wanting to enjoy summer and not worry about buying or selling a property. However I believe the real estate industry has begun to see the need to manage their business better, and so establish campaigns that culminate with sales pre-Christmas or wait until the end of January and in so doing leave January clear for vacation. 

The month of May is very clearly becoming a more active month with a successive shift from being the 5th quietest month back in the early 90's to being the 3rd most active month of the year in most recent times. Why? I suspect that the earlier statement about how January has become less active has shifted the summer marketing campaign period well into May.

July has like May, become a more active month, however it is still the 3rd quietest month of the year.

Finally December has become less quiet, this coupled with a slight lessening of the activity in October would possibly indicate that the traditional Spring market activity is getting later and the lead up to Christmas is as active as the main month of November, especially as it lends itself a settlement and house move in the best of the summer days in the new year. 

 

Back to the matter of is Spring the best time to sell?

 

To really assess the best time to sell, you need to look at both the listings and sales by month to picture the seasonality. Statistics for listings only go back to 2007 via Realestate.co.nz and their NZ Property Report, so I have adapted the seasonality of sales chart to measure the past 11 years. So here are the charts based on this 11 year period for sales and listings.

These two charts have the same identical axis scale of -25% to +25% and the first thing that strikes you is how much more volatile listings are in terms of seasonality. There are only 5 months of the year when listings are more than average (Feb/Mar/Apr/Oct/Nov) with 7 below average, whereas sales are split 50/50. For sales there are only the two months of January and March when the variance to the average is greater than 10%, whereas for listings there are only 3 months when the variance is less than 10%.

A better way to view this mirroring of supply and demand is to line up the two sets of data on a single chart.

This is the chart that best shows the challenge of when to list a property for sale. If you hold by the adage of being a 'big fish in a small pond' then the best time to list is during the winter when listings drop off far more than sales drop off.

If you wanted to call a single month then December would be the winner. The differential between listings and sales is 16 percentage points, closely followed by May at 13 percentage points.

The worst month to list based on this analysis is October where the differential is 17 percentage points. This would therefore seem to completely quash the notion that the best time to sell is the Spring, certainly a deluge of new listings hit the market in the Spring but based on the latest 11 years of NZ sales data, September and October are actually quiet sals months with November being the single active month of the Spring.


The property portal space just got more competitive – welcome OneRoof

by Alistair Helm in ,


 
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Once there was one, then became two, a third lasted but a few years, another made some noises, but soon exited, all was quiet for many years before ethnic diversity spawned a new entrant and then with a rush first one and then another came to challenge the two primary incumbents.
— A historical perspective of NZ's property portals

Such is the history of the past 20 years of the digital real estate classified marketplace, those to which I refer can be seen in the chronology below:

1995 – RealEnz was the first property portal in NZ owned originally by REINZ (Real Estate Institute of NZ). It went through a few iterations and stumbles including a time around the turn of the century when the major 5 real estate companies launched a competitor in Realestate.co.nz which lasted 2 years

2005 – Trade Me launched a property classified portal, initially as a private selling (auctioning) platform it soon focused on advertising and sought out the support of the real estate industry. Ray White were the first to sign up with gradually the rest following until by 2009 all were on the platform

2005 – The REA Group from Australian launched Allrealestate.co.nz, leveraging the platform of the Australian Realestate.com.au site, the investment in NZ was significant with mainstream advertising and incentives for agents

2006 – RealEnz re-branded as Realestate.co.nz under a new ownership 50% REINZ and 50% Property Page NZ Limited (Harcourts, Barfoot & Thompson, Bayleys, Ray White, Harveys, LJ Hooker)

2008 – Allrealestate.co.nz closes operations. It all became unsustainable and their focus was on richer international markets

2009 – Sella.co.nz (owned by APN) expands to offer property classified

2011 – Hougarden launches as Chinese language property portal utilising initially a complete listings feed from Realestate.co.nz

2012 – Sella closes

2015 – Homes.co.nz launches initially as a property valuation portal but from 2017 as a listings portal with first supporters of the major brands being Ray White 

2018 – OneRoof (owned by NZME) launches

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For most of the past dozen years the digital classified property space has been dominated by the two largest incumbents – Realestate.co.nz and Trade Me Property. They have jostled for leadership, challenging from a position of listings supremacy in the case of Realestate.co.nz, and audience supremacy in the case of Trade Me Property.

Now there is a new contender that has been quietly offering a beta version of a site since December – OneRoof, backed by NZME. It is officially live and open for business and that is reason enough to share my thoughts, opinions and perspective on the new challenger.

Firstly the NZ industry has seen challengers come and go. Allrealestate backed by the Australian REA Group made a valiant effort to take on the market between 2005 and 2009 and made a good job of it. If it had not been for greater international opportunities it could well have succeeded as a long term player. The management knew the business, they held a good share of inventory and they had deep marketing pockets at a time when Realstate.co.nz did not, and Trade Me was of the view that marketing budgets were unecessary.

Equally Sella, albeit a clone of Trade Me made serious plays in 2009 and attracted some listings and certainly had an audience but the industry was not keen on a media owned competitor (at the time owned by APN which of course became NZME).

The landscape in 2018 is somewhat different though, and for this reason and the reasons I will explain below, I believe OneRoof could potentially be a very serious player in this market as early as this time next year.

 

User Experience

The OneRoof platforms of website and mobile apps are superb. They are in my judgement better than either Trade Me or Realestate.co.nz and given the turmoil that seems to be inflicting the latter in terms of its ‘new site’ this competitor puts their efforts to shame.

The platform is rich with a diversity of content, combining listings with property data, highly intuitive search functionality and excellent premium listing presentation. You could criticise them and say there is way too much data covering everything from travel times to crime data, local restaurants to property stats. For me it all works; and you can avail yourself of the richness or ignore it as it is far from intrusive.

From a technical standpoint it is interesting that they have chosen to create 2 browser platforms – a desktop and a mobile version. The more normal approach these days is a single fully responsive single browser experience. Having said that Trade Me still operates two browser platforms although they have been beta testing a fully responsive site for quite a while. The Realestate.co.nz new site is fully responsive (however the original Classic site was actually semi-responsive). There are inherent issues running two browser platforms, but equally fully responsive sites with multiple breakpoints are a technical challenge.

The apps on the mobile device for OneRoof are great based on my testing of the iOS app. The app is great with excellent map based search and great user interface design. The full rich diversity of content is as complete on the app as on the browser.

I have to say as a user OneRoof is the best digital platform on the market today.

 

Existing relationships

The huge advantage that OneRoof has over other challengers like Homes and even I have to say Trade Me is the relationship that NZME has with the real estate companies. These parties have been close for decades as the industry have been supportive advertisers in the NZ Herald and strong bonds exist across all the real estate companies. This is an Auckland skewed situation, but there would be few real estate companies around the country that at sometime or other don't advertise in the Herald or any of the other mastheads that the company operates (Bay of Plenty Times, Hawkes Bay Today, Rotorua Daily Post, Northern Advocate and many others across the North Island).

This trusted relationship will have been tested last year when NZME must have engaged the industry to announce their intention to launch OneRoof. That is what I assume. The fact that the site is live indicates that the industry were comfortable (I might judge this as being somewhere between grudging acceptance and supportive dependent upon which real estate company you talked to).

A big question for me is whether NZME will truly package up online and print advertising in easy bundles for agents to sell to vendors or if has been the case over the years the digital sales teams and print sales teams retain their own account books and end up confusing and forcing agents to choose?

All of that having been said the one worrying issue is that given the site was launched in beta in December and now is fully live in April the inventory support is very low. Of the major 5 real estate companies (who also remember own 50% of Realestate.co.nz) only Bayleys has jumped in 100% with listings. It is surprising and somewhat concerning that OneRoof has not secured any other major yet.

 

Media family

As mentioned the ability for bundled package selling of print & digital is a natural opportunity that NZME has created in this new platform, however the media family offers far more.

As the Australian counterparts have shown in both having media parents (Fairfax in the case of Domain) and News Limited (at least as majority owner of REA Group), there is much to be leveraged in the cross median marketing.

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Already the weekly NZ Herald property supplement has tipped its hat to OneRoof, I suspect it will not be long before the supplement is branded OneRoof, mirroring the Domain supplement in the Fairfax newspapers The Sydney Morning Herald and The Age. Equally the News Limited papers have used the branding style of Realestate.com.au in their property supplements.

The media machine that produces the newspapers around the country generates a vast amount of content around property which will be honey for the OneRoof audience adding to engagement.

I suspect it will not be long before OneRoof quietly smothers the fledgling specialist Commercial portal of True Commercial; it has been labouring away for many years but OneRoof Commercial makes more sense - a single platform for all types of real estate... all under OneRoof.

 

Maturity of digital media

There is a significant difference between a new competitor entering the market for real estate advertising now as compared to back in 2005 or 2009. The industry, and by that I mean the main 5 companies have a clearer view of how they operate today in the digital space. They have confidence in their industry owned portal of Realestate.co.nz. They judge that the relationship with Trade Me is balanced and they have not witnessed the total demise of print media.

Therefore in my mind, they are more likely to accept the establishment of OneRoof especially as Homes.co.nz is already an emerging competitor which has the full support in terms of listings from Ray White. This in someways demonstrates the split in the make up of the 5 major real estate companies when it comes to digital media. Ray White have always been the first mover as they were in 2005 supporting Trade Me, they equally supported Trade Me after the pricing fiasco in 2013 when Trade Me needed an ally. So they have with Homes, judging it better to take strategic advantage early on rather than follow the herd. Bayleys equally with a seasoned media person as General Manager in Greg Hornblow, can see the strategic advantage of an early agreement with OneRoof. As for Barfoot & Thompson and Harcourts they are the most staunch supporters and board members of Realestate.co.nz so it is no surprise that they are hedging their bets when it comes to Homes and OneRoof. As for LJ Hooker I don’t know, except to say they have not been known for strategic moves.

 

Burdens of incumbents

OneRoof is fortunate that the digital media landscape is somewhat fluid at this time, in this I am referencing the two main players.

Realestate.co.nz is the industry back-stop, supported by all real estate companies but feeling a little bit like it is floundering, given the current platform evolution on the web. Its strategic role as the price setter, has been a massive success. But I feel that this is now assumed by many in the industry to be what it was, not so much what it is or what it might become.

Trade Me Property is still fighting with a hand tied behind its back as a function of ‘long memories’ in the industry to the price changes back in 2013, this has limited the role it once held as a market leader in terms of business model and technical platform. Trade Me needs to establish a new platform urgently, especially in regard to the browser as the mobile apps are great but agents are not as engaged in the platform as they once were.

 

Market conditions

The property market especially in Auckland has clearly cooled and likely to remain cool for the next period, be that a year or more, with an expectation of sluggish growth as opposed to negative growth in both sales volumes and prices. For the rest of NZ the fact is what Auckland leads the rest follow (in time).

This property market is going to be very interesting for the property portals; for whilst a cooler market spells ‘longer time on market’ with a rising inventory (with the attendant rise in revenue for per-listing services) it may not depress overall advertising spend, quite the opposite as a cluttered market with high inventory will require smarter marketing to get properties to stand head-and-shoulders above the rest. The real estate industry is likely to go through a structural shift with a large number of agents exiting, but the overall size of the cake of advertising spend may not reduce markedly.

Given the requirements of smarter marketing a new entrant with smart premium advertising options matched to package bundling of print and digital could well reap huge rewards – OneRoof is so well placed.

 

The kill switch

With all this believe and positive encouragement for OneRoof you would think the champagne corks may be popping down at their Central Auckland head office, there remains though one nightmare reality. It is that the real estate industry holds the ignition keys – the listings.

As long as OneRoof fails to gain a decent foothold of listings inventory, the consumer will lose interest and repeated marketing attempts to re-attract them may reach a point beyond which the consumer may ignore the site completely. It is one thing for Trade Me Property to continue to succeed with 92% of listings it is a vastly different matter for a new site to offer at best 25% of listings. OneRoof needs to be very careful not to offside the major 5 real estate companies as without them they will struggle to get beyond 35% of the market even with Bayleys.