Are apartments showing much capital gain?

by Alistair Helm in


Photo by  Francesco Ungaro  from  Pexels

Photo by Francesco Ungaro from Pexels

The NZ apartment market is highly polarised around one city, and one district of that city. I am of course referring to Auckland City. Out of the total of 3,900 apartment sales across the whole country in the past year, more than 2,000 of them were in this tight geographical district.

Apartments, just as with all other segments of the property market have witnessed strong sale price growth over the past few decades. In the past 15 years the median sales price for apartments in Auckland City has risen from $220,000 to $545,000. More than doubling. However, that’s not quite keeping pace with the overall housing sector, and certainly not attaining quite the same capital growth.

An Auckland house bought in 2004 for the median sale price at the time of $342,000 would if sold in December 2018 at the then median sale price of $911,000 have gained $447,692 allowing for inflation. Equating to a 130% return on investment.

An apartment in the Auckland City purchased back in 2004 for the then median price of $220,000 would if sold in December of last year have gained $246,965 allowing for inflation. Equating to a 112% return on investment. A healthy return, off a lower initial investment.

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However as the above chart ably demonstrates such capital gains can be misleading when judging median sales prices over different time periods. For within this 15 year period there were significant periods when the gains were minimal and others where the gains were significant.

The first 7 year period of 2004 to 2011 through the GFC saw median sale price for Auckland City apartments rise and then fall so that the notional capital gain over that specific 7 year period was zero. Similarly though if you bought in 2011 at the then median sales price of $215,000, just 5 years later the median sale price had risen to $575,000, a rise of 167%. However over the most recent 2 years there has seen no rise in median sale price.

In many ways this volatility of capital gain is one of the core variables of the apartment market. It’s a market influenced to a far greater extent by supply and demand factors than the wider property market. Auckland city apartments experience very ‘lumpy’ periods of new supply which through their composition can significantly impacts median sales prices. Additionally such surges in supply naturally effect prices of existing inventory competing in the market at that time.


My interest in this category of apartments was peaked by a note sent to me by Simon Green from Queenstown who when reading my recent article on the comparison between the notional capital gains from Auckland houses as compared to those of Sydney and Melbourne over the past 15 years. He wanted to see how the apartment market was was fairing in those cities and also if I could look into the Queenstown apartment market. I must admit I had not in the past thought to examine this specific market, but questions like this always interest me. So for Simon’s benefit and others here is what I have uncovered.


The analysis of the apartment market comparing Auckland, Sydney and Melbourne is undertaken based on a model developed by Domain Group in Australia, one of the large digital property portals in Australia. Their analysis tracked the notional capital gain (adjusted for inflation) for time periods over the proceeding 15 years, based on the purchase date for an apartment sold in December 2018 at the then median price. So by example for an apartment bought in Sydney in March 2009, after inflation, that property would have netted a notional capital gain over the past 10 years of A$222,735, that would compare with the same time period in Melbourne of A$58,646 and in Auckland NZ$258,601.

The charts below track this 15 year notional capital appreciation of the 3 Australasian cities.

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Directly comparing these 3 cities on a common NZ dollar basis over the 15 years produces this summary of the very different markets.

Auckland Sydney and Melbourne apartments capital gain 2004 to 2018.png

There is without doubt a similar trend albeit with differing scale of capital growth over the 15 year period. It is surprising to me the lower levels of capital growth seen in Melbourne as compared to Sydney and then again the much higher capital growth for the Auckland market of apartments bought in the 2010 to 2013 period vs the current median price.

All markets are though clearly experiencing a recent 3 to 4 year period of negative growth over this near term.


Turning then to the Queenstown market for which I had no real perspective of the scale of the market before diving into the data. What I found was very interesting. Annual sales of apartments in the Queenstown Lakes district have averaged 116 with a peak in 2006 at 260 and a low in 2011 of 72. As far as the notional capital growth for apartments bought over the past 15 years as compared to the current median price the chart presented below is somewhat different to the main Australasian cities.

Queenstown apartments notion capital growth 2004 to 2018png

I recognise I am ill equipped to offer a commentary on this market trend so I take the opportunity to share the perspective of a local expert - Simon Green who furnished me with this response when I posed the question to him to provide background to the data.

“The data does actually make sense to me and I don't think there is necessarily any change in composition. It is a small dataset as the really are only a dozen or so major complexes in town and most of those were sold off plan pre-GFC with the bulk settling 2006-2008 so that part makes sense. There was also a large complex of 89 apartments that settled in 2009 which held pricing up as they had been sold a few years prior at top of market. From there we went into GFC proper - no buyers in market, a large number of mortgagee sales and and other "stressed" sales as income was very low in comparison to purchase prices.

Prices continued to fall for most part through to 2013 and has been recovering well since then due to improved income performance - but equally has been pulled back by a number of complexes now leaking.

Volume of sales remains fairly low compared to '06/'07, but has been due in many ways to owners being happy with their income and not really seeing any better investment opportunities. However, for the past 18 months or so buyer activity has dropped significantly. Prices have softened slightly, but the quality stock should hold its value as there isn't anything for sale and while income will not continue to grow the way it has over past 5-6 years, it shouldn't drop - so value.

So data does seem to reflect the market fairly well.”


The future looks bright for Trade Me Property as it casts a darkening shadow on Realestate.co.nz

by Alistair Helm in ,


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“Someone should never take part in a fight unless they know they will win it”.

This was the opinion voiced in an article by David Hargreaves on Interest.co.nz in February 2014. Over 5 years ago. The article expounded the view that the real estate industry had more to lose than Trade Me, over the then, bust up over increased fees being introduced by Trade Me at the end of 2013.

Five years is a long time in our fast-paced digital world, yet the prophetic view expressed in the article is coming true all these years later, only not quite as imagined. The view then was that the real estate industry’s very business model, could in some way be impacted by the squabble with Trade Me. That has not eventuated. However, the real estate industry has lost in their ability to control the digital marketing platform. A loss far less financially significant, but none the less a squandered opportunity.

I have written at length over the years on what I see as the problems of Realestate.co.nz, and its ever weakening position against Trade Me in the competitive arena of digital marketing, including an impassioned address to the Real Estate Institute AGM last year. Sadly time moves on, and with it, the ever growing strength of Trade Me Property; and for its rival Realestate.co.nz, as the title of this article states, things look bleak.

The half year results of Trade Me published last month stated “The performance of Trade Me Property is exceptional and should continue into the second half of F19”. Not only is it exceptional at $22.3m, it is also sustainable. Trade Me Property in my opinion has found its sweet spot and for now the future looks bright. This result and optimistic outlook are the direct result of two significant successes that have yet to be fully realised. But before I examine these two matters, let’s pause a moment to look at Trade Me Property revenue over the past 4 financial years as reported in financial investor reports.

The most recent 6 months to December 2018 is outstanding, and follows what has been a fairly average performance over the prior years with revenue growth barely hitting double digit percentage growth.

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I am no financial analyst, but I would hazard a guess (as I have done in the above chart) based on my experience and knowledge that the second half of the FY2019 year is likely to see year-on-year growth of 30% resulting in a full year revenue of over $48m, up over 80% on 5 years ago when things went so wrong for Trade Me.

So to what do I ascribe this remarkable performance of Trade Me Property. Firstly a smart and highly successful new product launched last year – Premium Listing.

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This product works exceptionally well, Satisfying the needs of both the vendor and agent. The standout presence of this large listing creates impact in the search results and delivers a markedly high level of page views, not just on web browser pages but also on the Trade Me apps. This is significant, as up until the launch of this product there were no premium listings on either Trade Me Property or Realestate.co.nz that delivered a premium impact on the mobile apps in standard search results. The product design is loved by agents as it incorporates the agent and agency branding to great effect. Priced at a significant premium to the existing offering of Super Feature, the new Premium Listing has achieved a high penetration rate in the key markets of upwards of 15% of listings. This product is likely to benefit from the power of the virtuous circle. Agents love it, they include it in marketing budgets, the results are a delight to agents and vendors, other agents see the power and brand influence and they become adopters and for the buyer searching for property the design is as ever from Trade Me beautiful.

So that is one of the powerful drivers of this new rejuvenated and growing Trade Me Property business. The other is inventory.

I reported back in October last year that Trade Me had then surpassed Realestate.co.nz in terms of total listings of property for sale (including private sales). This was a key milestone as it destroyed the long standing cornerstone of marketing by Realestate.co.nz that they were the leader when it comes to inventory of listings. Subsequent to that turning point Trade Me has powered ahead and as of this month they have surpassed a new milestone.

Trade Me Property now features more property for sale from real estate agents than any other website. This is significant, really significant. Five years ago things went wrong for Trade Me over the price changes and the real estate industry endeavoured to boycott Trade Me. Today more of the industry support Trade Me than support Realestate.co.nz - the property portal that is owned by the industry. The charts below highlight this recovery by Trade Me, firstly for all listings and secondly for agent only listings.

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For Trade Me Property to be displaying significantly more agent listings than Realestate.co.nz on the website today (28,483 vs 26,277), means that real estate agent office are questioning the value of Realestate.co.nz. For the past 5 years the industry has rallied around the industry owned site seeking to consolidate support to make it the critical asset that it had the opportunity to be.

Sadly the industry, whilst well intentioned and principled as a body, is in reality a loose aggregation of over 600 independent business owners and over 15,000 independent contractor-status agents. They all think and act, first and foremost to their own best interest. Trade Me is a marketing tool, just as is the Property Press and the newspaper supplements, as well as Realestate.co.nz and when individual agents select marketing campaigns for their clients’ property what matters most is results. Those results are judged in page views and enquiries, as well as agent profile and presence, and this is where the rubber hits the road. Trade Me is winning this battle and likely to press the advantage even harder in the coming months and years, leaving the events of late 2013 to be a distant memory.


Disclosure: I have over the past 13 years been a senior executive at both Realestate.co.nz and Trade Me Property.

I am not at this time involved in either company through any role or investment. This article, as with other similar articles are written based on published information combined with insight gleaned from studying the property portal marketplace internationally over the years.


Moving house in the digital age

by Alistair Helm in


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I’ve been a casual observer over the past few years of The Internet of Things (IOT). A phrase coined by Kevin Ashton to describe the “interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive data”.

I can recall visiting a “smart home of the future” as was described by Microsoft at the time in 2001 in Sydney and being captivated, as many people were by the internet connected fridge. More for the touch screen device on the door (remember this was 6 years before the launch of the iPad).

Such visions of the future as so often happens, take longer to arrive than we imagine. Skip forward nearly 20 years and there are very few touch screens on fridges. However the Internet of Things has slowly permeated our home, from cameras on door bells, to remote device control of our heating and lighting. The fact is, if a device is connected to a power source it could be and maybe connected to the internet, certainly my printer is, and I love the freedom to print wirelessly.

Anyway back to the title of this blog “Moving house in the digital age”. My interest in this subject was piqued by listening to a recent regular podcast favourite of mine “This Week in Google” with the regular co-host Stacey Higginbotham who is an expert on IOT. She got into an interesting discussion of the challenges that are faced by people like her, who live in highly connected houses that are alive with IOT devices, from lighting to door locks, to garage doors, to believe it or not taps an ovens.

Stacey is a real live case of someone who’s moving house and in preparing her home for sale she is somewhat challenged by the myriad of operating systems and instructions that pervade her connected home. How to convey to the new owner the operating systems for everything? Added to that is the thorny question of security.

Each device has an IP address and is connected through networks to routers that are all accessed by passwords. The conundrum she and other such hosue owners face is the question: “Should these passwords be changed or deactivated?” This type of issues shows just how moving home in the digital age is potentially far more complex and requires more thought. One aspect of no small significance is the question of privacy. Many IOT devices store data (anonymised) on usage which is very insightful to the behaviour of the user. Think for example the data insight you can infer from the time based tracking of a garage door or the usage of interior lights as well as thermostats.

Stacey conveniently referenced a document provided by the Online Trust Alliance which publishes a Smart Home checklist – Advice for buyers, sellers and renters. It is eye-popping in suggestions such as “Obtain confirmation from previous owner they no longer have administrative or user access”.

I could not help but reflect on how this compares to the current checklist for moving home. A quick check online brought me to the Harcourts site which has a very comprehensive checklist. However I am not sure the list has been updated recently as the opening advice was to cancel the newspaper and milk delivery. Do many people still have milk or newspapers delivered?

How times have changed. I recently wrote an article reflecting on the changes in marketing property for sale over the past 25 years. The internet, now celebrating its 30th birthday continues to impact our daily lives and surprises us at time in ways we least expect - like how we approach moving home with our ever more connected smart homes.


Is Auckland likely to follow Sydney & Melbourne with falling house prices?

by Alistair Helm in


Photo courtesy of  Catarina Sousa

Photo courtesy of Catarina Sousa

Much has been written over recent weeks as to the question “will Auckland house prices fall in coming months, mirroring what has been seen across the ditch in the leading Australian cities?”.

I had firsthand experienced of just this question recently when a Sydney based buyer interested in an Auckland property was fearful of making an offer, uncertain as to the future trend of Auckland house prices.

Such concern and uncertainty in my opinion, needs hard data to either support the supposition or to refute it, and thereby allay fears. Recent commentary in the median has put falls in Sydney and Melbourne anywhere from the current 9.5% fall from peak in Sydney and 5.8% in Melbourne to the potential of a 20% fall according to an ANZ economist.

Whilst these data points are useful (and depending on your perspective potentially alarming); for me the visualisation of pricing trends assists better in comprehending where we have come from, and where we may be heading in regard to house prices. With this as a perspective I was delighted to come across some very interesting analysis published on Domain, one of the two leading real estate portals in Australia.

The article titled When was the best buying in Australia’s capital cities undertook a very interesting analysis to visually portray the slump in house prices in leading cities. The research analysts calculated “how much money would have be made from selling the median value house in each city in December 2018, based on when it was purchased over the prior 15 years.

Historic values were adjusted for inflation so both the buying and selling points are represented in today’s dollars. Therefore, the gains and losses reflect ‘real’ returns, taking into account the effect of inflation”. It is worth highlighting that the data set is house sales and excludes apartments and units.

The resultant charts certainly visually portray the slump .. and some degree of a recovery.

Net gain in house prices in Sydney based on Dec 2018 prices

Just to ensure complete clarity in the interpretation of the chart. The data visualisation shows in each bar the notional net capital gain for a house sold in December 2018 which in theory had been bought in relevant quarter, anytime in the preceding 15 years. So to take a specific data point as an example, a house bought in the period Sep 2008 would have appreciated A$400,000 if sold in December 2018 based on median sale price adjusted for inflation, whereas a property purchased in May 2015 would have sold with a loss of A$6,000.

The chart for Melbourne is presented below to provide a side by side comparison with Sydney based on the same model.

Melbourne notional capital gain in house prices to Dec 2018 Properazzi

Comparing these two charts highlights some interesting differences and similarities. In regard to the loss in capital value over the recent 2 years, Sydney has suffered a significantly larger drop almost touching A$200,000 capital loss (if property was purchased in May 2017) whereas Melbourne only edged towards a A$100,000 capital loss in Jan 2018. However the data clearly shows that both markets are recovering and given these are quarterly data sets this trend covers 9 months in the case of Melbourne and 15 months in the case of Sydney, so it would be fair to say this is a trend.

Also of interest is the key difference between the two markets, especially in the period from 2004 and 2012. Sydney almost consistently delivered c. A$300,000 gain, whereas Melbourne showed significant capital gain through the first 3 years at upwards of A$350,000 but since then has edged lower in two clear cycles.



AUCKLAND

So naturally the question is how does the Auckland market look in comparison, and does it show signs of mirroring Sydney and Melbourne?

I have used REINZ stats to extract the same data set - quarterly median house sale price for Auckland from 2004 to end 2018. I have adjusted the data for inflation by using the consumer price index provided by the Reserve Bank of NZ and have mapped the data in the chart below.

Auckland capital gain as at Dec 2018 for house sales Properazzi

There is certainly a similarity between Auckland and the Australian cities. There are though significant differences. Firstly the decline in capital growth in Auckland occurred earlier - starting in March 2012 when capital gain was around NZ$350,000 through to May 2016 when capital gains disappeared. Whereas Sydney began to see falling capital growth a year later in March 2013, but fell sharper to hit nil growth a year earlier than Auckland in June 2015. Melbourne on the other hand began to see falling capital growth in September 2102 and hit nil growth in December 2016, just after Auckland and a full 18 months after Sydney.

The major difference though is that whereas Sydney has dropped to show a bottom-of-the-market based on median sale price in June 2017, representing a fall of A$172,000 as compared to December 2018; Auckland has a bottom-of-the-market in December 2016 representing a fall of $62,000.

So the Auckland market began to see the heat come out its property market earlier, it saw prices drop earlier and that drop has been for longe, but did not slide so far down as Sydney. Add to this, the fact that the Auckland market has recovered to show positive capital gain for the past two quarters.

There is never any real certainty in predicting the trend in property markets, but based on this data analysis I would judge that the Auckland market does not look likely to mirror the Sydney and Melbourne markets; simply because Auckland saw an earlier correction. If anything it could be argued from this data visualisation that the Sydney and Melbourne markets are in some way mirroring Auckland.

The final chart shows the side by side comparison for all 3 cities based on NZ$ data and supports this assesment.

Auckland Sydney Melbourne house price capital appreciation as at Dec 2018 Properazzi

Hustle, Hustle, Hustle

by Alistair Helm in ,


I find serendipity an amazing thing. I find it strange when you start seeing repeated comments in the course of a day, especially when they come in fast succession and when they so clearly resonate in the context of your own day-to-day life. So it was the other week, when I felt I was being bombarded by advice to Hustle!

I’ve been a real estate agent for 9 months now and have been ‘encouraged’ to hustle to get listings, hustle to get your name out and about, hustle to ask people incessantly “are you looking to sell, do you know anyone who might be?”

Just last month a couple of local real estate agencies latched onto Hustle as a theme to grow your business.

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Thinking about this notion of hustling for business, reminded me of one of my favourite sessions I used to undertake in my role at Trade Me Property. I regularly spent about an hour providing insight into the everyday life of a real estate agent to enlighten software developers. This was invaluable; they relished the opportunity to get a sense of the world from the perspective of their customers. And in so doing, take this learning and apply it in the products they designed and built, given the agile environment in which we operated.

I recall that I’d often shock and surprise them with the simplicity of the role of an agent. However, on the other hand for every one of them, the lack of a cushion of a salary, and the incessant need to be working every hour of every day to seek out their next business opportunity. I could sense every one of them were nervous of this. It certainly didn’t illicit an instant rush to join the band of agents, despite the potential earnings.

However, in retrospect what I said then and what I know now seem even further apart apart as my first hand experience has grown. The fact is, what I was talking about then in my opinion actually bares little relationship to the true experience of my first year as an agent. Some months ago, I wrote an article sharing some of my early experiences of being an agent and the challenges I had faced breaking into this new role. Subsequent months have not seen that change much.

Real estate is as is so often said; is simple but by no means easy. To my way of thinking this relates to the process of engaging buyers and sellers in the core element of negotiation. Yet it also fully reflects the process needed to be undertaken before a rookie will ever get close to this end of the business, ever gets close to getting a listing in the first place. It’s again incredibly simple to understand. Without a listing, prospective agents have no presence and no involvement with clients, either as buyers or sellers. Add to this the fact that without a listing it is hard to prove your skills and capability. Sadly, this doom loop is staring every rookie in the face – no listing, no case study to demonstrate capability, so no listing.

How to break out of this doom loop is the core challenge for every agent in their first 6 months. I say 6 months, as the sad fact is that more than half of new agents barely make it past the 6 months mark, fewer last until the first anniversary. The reality is few can self-fund themselves through this period with no income.

I know there will be some readers who will by this stage be thinking to themselves “but this is good ; it sorts out the grafters, the hard workers from the people who just can’t handle it” and the other comment I suspect “fake it till you make it”. I get this. Darwinsim and ‘The Wolf of Wall Street’ syndrome combined. However, might this actually be the counterintuitive? Might the industry be fast tracking people into this industry who are great as prospecting machines rather than being great practitioners of this profession at its core? I may be splitting hairs, but I sense as a reader you will see my point. Is Hustle, Hustle, Hustle the right proving ground of this industry?

Every agent need to get their brand known and ideally top of mind. The simple fact is there are no shortage of agents across all of the country. All of them can and want to, support every customer. So it’s a tough battle every day to win a listing and unless you are known you are literally invisible.

There are many methods of getting known. Door knocking is still favoured as it provides an ‘in your face’ experience that says “here I am I’m a local agent who’s looking for work”. Other agents, such as a former colleague of mine have a natural exuberant personality that shouts from the mountain top. Jadyn Dixon is one of those people who loves the limelight and is doing a stellar job of getting known in a way that may not be suited to everyone – just look at his recent videos and through this his feature on Seven Sharp – incalculable marketing impact.

I am not really in either of these camps to be honest. I cannot muster the courage, or as I see it the disingenuousness behaviour of door knocking, nor do I intend to undertake outlandish videos. I’m choosing a more structured and credibility based route. I’ll readily acknowledge this strategy is potentially going to take longer, but I feel it’s better to remain true to myself and my principles. Principles such as offering deep property insight, significant marketing knowledge and experience, delivered with professionalism in a personable and trusted manner. To date it is working, but to be honest I have to wish I was succeeding more of the time!

As a final note whilst writing this article I came across this interesting post on Medium highlighting the trend of overwork in the tech start up world “Hustle Porn Is the Latest Toxic Scourge to Hit Entrepreneurs’ not a notion I had come across before, but I related to the depiction of the dog-eat-dog attitude that the only way to succeed is to work 18 hour days. Maybe real estate as an industry needs to take a breath and realise endless hustle may actually be counter-productive to the profile and the resultant opinion many people have towards this industry. That’s just my opinion.


THE AUCKLAND QUARTERLY PROPERTY REVIEW - Q4 2018

by Alistair Helm in


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The Auckland market continues to mark time, showing little in the way of a clear direction. It is as if the market were an indecisive person caught at the fork in the road.

“Do I show signs of heightened activity and enjoy sales volume growth and price appreciation, or do I see retrenchment with lacklustre or declining sales and with it a weakening of sales prices?”

Neither future path is yet to be definitively taken. However analysing the core metrics of the market as I love to do, helps to identify the future direction of the market. These metrics are the sales volume trend, the median sales price trend and the clearance rate.


VOLUME SALES

The final quarter of 2018 saw one of the most erratic changes in sales volume for many years. As a total, sales for the months of October, November and December totalled 5,417 properties. This was a 3% rise as compared with the same quarter of last year and totally reflective of the normal market we have seen over the past year as the market has continued somewhat flat. However within that 3 month period the sales as compared to prior year were all over the place.

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October sales were up 19%, November up 12% and the December collapsed with a 21% fall. Yet in total for the quarter - a 3% rise. Why?

I believe what we witnessed was entirely the result of the deadline for the introduction of the changes to the law restricting overseas buyers which came into force on the 22nd October. The fact is any property purchase under contract (be it a conditional or unconditional contract) made legal before this deadline was except from the changes and I firmly believe what we witnessed was a surge in buying activity that brought forward property purchases to meet the deadline. These sales show up in both October and November due to the extent of conditional agreements going unconditional in November and recorded in that month’s stats, as well as unconditional sales in October.

This short term hiccup though does not materially impact the underlying trend in sales volumes as is seen in the moving annual chart below. Sales volumes for property sales across Auckland remain flat. The latest total for the calendar year 2018 was 21,850 down 35% from the most recent peak of the market back in October 2015.

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PRICING

Just as sales volumes have remained flat for close on 15 months, so the median sale price have continued to simply mark time. The median sale price for the final month of the year was $862,000. A year ago it was $860,000. Two years ago it was $855,000. You have to reach back into 2015 and early 2016 to witness the last time median sale prices in Auckland was seen rising significantly. Interestingly way back in August 2016 the median sale price was $854,000, that is 27 months ago, such has been the flattening of Auckland sale prices.

Auckland median sale price trend 2000 to 2018.png

When seen as year-on-year variance it becomes ever clearer as to the fact that Auckland median sales price has experienced an unprecedented period of stagnation. This though as many people will likely comment is not a bad thing. Stability of house sale prices drives over time greater confidence in the market. Initially from buyers who feel less panicked into the fear of ‘missing the market’ as it rises; and then subsequently from sellers who feel more confident as to what the market value of their property is and therefore more confident to move.

Auckland median sale price variance 200 to 2018.png

CLEARANCE RATE

The final of the 3 core metrics which I like to look to to get a rounded and truly objective view of the state of the market is the clearance rate. The measure of the transactional ‘health of the market’. It uses the comparison of sales to new listings ratio as a measure of overall activity in the market.

For the past 3 months, the final quarter of 2018 the clearance rate has bounced back. The last quarterly report for 2018 Q3 highlighted a noticeable and sudden weakening in the market. Halting a trend that looked to be showing all the characteristic signs of recovery. Well, the last 3 months of 2018 seem to have put that weakness out of its mind, and set the trend back on the predictable path which is towards a strengthening in the market.

Auckland property clearance rate 2008 to 2018.png

The current clearance rate is edging back towards 60% . Still a far cry from the 70+% levels seen back in around 2015 but as ever with property markets there is typically a cyclical movement. The current projection is surely heading towards an upward trend in the clearance rate which then tends to be the lead indicator that (as shown by the historical context in the chart above tracking the past 10 years) may well see a resulting inflationary impact on prices.


QUARTERLY PROPERTY REVIEW FOR NZ OUTSIDE OF AUCKLAND - Q4 2018

by Alistair Helm in


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Whilst the Auckland property market marks time in uncertainty as to next cyclical movement, the market outside of Auckland for the rest of NZ shrugs off this perspective and continues to show healthy development. Sales volumes are steady and slowing edging up, albeit from a decline through 2017. Median sales prices are strong and edging up at a rate ahead of core inflation, and the key clearance rate remains high - all indicative of an active property market.


SALES VOLUME

Overall sales of properties across NZ outside of Auckland remains flat. The latest 12 month total of 53,142 is almost in line with the annual total in August of 2017 some 16 months ago. In that time annual sales have hardly moved hovering around the 52,000 to 53,000 level. It is clear though from the chart below that whilst sales volumes have been flat they are at a historical level that is significantly higher than most of the past decade.

NZ property sales exc Auckland 2008 to 2018

PRICING

Unlike the situation in Auckland where sales prices have remained stagnant for well over 2 years, the median sales price for the rest of NZ outside of Auckland continues to rise. December median sale price of $480,000 represented the 89th consecutive month of price appreciation. It was way back in August 2011 that the median sale price for property sales outside of Auckland last saw a negative year-on-year movement, that is over 7 years ago.

Yr on Yr variance in median sale price for property sales in NZ outside of Auckland 2008 to 2018

Back in August 2011 the median sale price was $304,500 for all sales outside of Auckland. Over that 7 year period sale prices have risen 58%. However this increase is behind the increase seen in Auckland over the same 7 year period which is 88% rising from $458,000 to $862,000.

Median sale price for property outside of Auckland 2008 to 2018

CLEARANCE RATE

The activity levels in the property market in areas of NZ outside of Auckland remain strong. The clearance rate of sales to listings ratio remains above 70% which as shown in the chart is high and edging upward, at the same time the trend of median sale prices remains steady with a c.7% year on year increase. These collection of core metrics demonstrate that outside of Auckland (which is undoubtedly experiencing a stagnant market) the rest of NZ moves along at a healthy pace with no easing in demand as property sales remain active and price pressure remains.

Clearance rate analysis of property sales to listings for NZ exc Auckland 2008 to 2018



A generational change in buying and selling property

by Alistair Helm in


Whilst marketing a property for sale recently, the owners casually showed me the advert for their property when they bought it back in 1993. A quarter of a century ago. A generation ago. It’s amazing how time moves on and things change.

The advert got me thinking just how much has changed in the process of buying and selling real estate over the past 25 years.

The leaflet, an A4 flyer was very likely the primary method of marketing back in 1993. A single page with one photo, photocopied and distributed to interested parties; available at the office of the real estate agent and at the open homes. There was not internet, no portfolio of professional photography with drone aerial images and video walk-through to allow people across the world to virtually experience the property.

To be made aware of this property’s status of being ‘on the market’ required eager buyers to visit the real estate office and / or read the Saturday newspaper or pick up the local property magazine.

Advertising back then would certainly have relied upon a window card in the office, with the photo of the house, and by photo, I mean a real photo processed and printed on photographic paper. One photo would probably have sufficed.

In addition to the open home, prospective buyers would have likely been chauffeured around the neighbourhood in the local agent’s car, a critical requisite in those days. Mobile phones and laptops were yet to become ubiquitous.

As for property information available to buyers. This was probably limited to the address, section size and number of bedrooms as the flyer clearly shows.

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This brief overview was probably further shortened and simplified into the newspaper advert – something like this:

Devonport – chtr family villa, 3brm, 504 section N facing. $255,000 Tel. Smith R 445 2243

An amazing 89 characters. Far shorter than a pre 2017 tweet and more a txt msg than an advert. But don’t forget in those days newspaper advertising was sold by column inches.

There was no market statistics readily available to assist buyers. At the the time with the Real Estate Institute had only begin collating property sales data a year earlier, so prospective buyers would not be able to tap into market trends nor any version of Homes.co.nz with an estimated property valuation. Buyers had to call upon the expertise and experience of the local listing agent. As to the condition and integrity of the property, no LIM would be provided. If a prospective buyer was keen they could visit the local council offices in the village and actually look through the property file for the address which were held in large ring binders and contained copies of all the documents the council held on the property – photocopy charges would apply.

So much has changed but at the core of the process the local agent role has not changed, an agent guiding, advising and supporting the seller remains central and core to the facilitation and negotiation between seller and buyer. Sure the market price of such property has changed; 25 years of Auckland price appreciation has seen to that, however be grateful for what you wish for as the mortgage rate back in 1993 was over 9%, and had been over 20% in the prior decade.


Does REINZ recognise the issues facing Realestate.co.nz?

by Alistair Helm in


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This post is specifically written for real estate professionals in NZ, I am not saying that the content will not be of interest to other people, but I sincerely hope that this post more than many I write, is read and shared by real estate people who recognise the role and value of the Real Estate Institute of NZ (REINZ) and who share a belief in the value of Realestate.co.nz.

If you have been a regular reader, especially over the past 12 months since re-establishing Properazzi you will know that I have written regularly on the issues I see with Realestate.co.nz as the industry owned property portal, as well as other articles on the growing competitive threat it faces.

I have made these assertions based on what I judge is the unique experience and insight I have of property portal operation here in NZ and globally.

I’ve reached out in the past 6 months to some of the leaders of real estate companies who are shareholders in Realestate.co.nz, to share these concerned in a very detailed manner with extensive facts and market research. I don’t propose to share this insight here, as it’s based on my own IP and if anyone wants to pay me for this knowledge and insight, I am happy to discuss. To be clear I made it available to the industry simply because I am passionate not to see the industry squander the opportunity that Realestate.co.nz provides to all in this industry, both as a digital marketing platform but also a significant financial asset.

Sadly, my philanthropic gesture appears to have fallen on deaf ears. Not a single invitation was offered for me to meet with the board of Realestate.co.nz, the executive of Realestate.co.nz or any representative of its shareholders. Clearly from this I judge they do not think I have anything to offer. (Just for clarification and background for those who are unfamiliar, Realestate.co.nz Ltd is a privately held company as a joint venture between REINZ and Property Page NZ Ltd a private company itself owned by 5 of the large real estate companies).

With this lack of engagement, I chose this week try another angle and attend the AGM of the Real Estate Institute. I am a member of REINZ as a licensed sales person and therefore like 15,000 or so of my fellow real estate professionals able to attend this annual meeting. I requested in advance to table my address the Board of REINZ and the members present at the AGM under the General Business item of the agenda.

The AGM was a well-attended event and I would be the first to congratulate the board of REINZ and the outgoing chair Dame Rosanne Meo for the transformation that has been achieved in the organisation over the past 8 years. The industry has a professional and competent organisation that has a clear strategy to add value to its members across data, advocacy and education. However, my message to the REINZ board was sure to rain on their parade for which I make no apology. Bad news is never palatable but what I chose to speak about is I judge of significant importance.

I did not speak off-the-cuff but chose to deliver a pre-written address, so I could be succinct as possible and also I could share the address with others. Here is what I prepared and presented at the AGM.


Thankyou Madam chair, I appreciate this opportunity to address the board of REINZ and in addition the members of REINZ both here in person and through this meeting platform to the wider membership.

I have chosen to read from a prepared letter rather than express my opinion spontaneously for the benefit of brevity. Such is my deep concern for the governance of Realestate.co.nz that I might exceed my self-allotted time limit of 5 minutes.

I come here today to address this board and this organisation on a matter that I feels needs the urgent and critical attention of the board. As I will outline, I charge that the board of Realestate.co.nz have over the years mismanaged and squandered the opportunity to not only make Realestate.co.nz a credible and trusted digital platform for buyers and seller but also to create an asset of immeasurable value for the long-term benefit of all members.

Let me begin by introducing myself for those who may not know me. I have had the pleasure over 12 years in this industry to meet and get to know many of you here today. As some of you may know, I began my association with the industry back in 2006 when I became the CEO of Realestate.co.nz, a role I undertook for 6 years. Over the past 6 years I have continued my involvement with this industry working with direct competitors of Realestate.co.nz. Today I attend this meeting for the first time as a member of REINZ – a licensed salesperson with Bayleys. The comments I make here today are made as a customer of Realestate.co.nz and member of REINZ and I judge are professionally objective.

Let me be absolutely clear. I am deeply concerned as to the viability of Realestate.co.nz, not the long-term viability but literally the short-term existence; for I fear that the business has but a short timeline of relevance. I have over this past 6 months shared my thoughts and opinions with leaders in this industry in one-on-one meetings. I took the opportunity to address the board and assembled members here today as a vital opportunity to share this opinion within the wider real estate industry through the shareholding membership of REINZ.

At the outset Realestate.co.nz was established to support and protect the industry from the rapacious ambitions of the competitive media players. Sadly, that mission seems to have been ignored or at least less zealously aspired to over recent years. The company has in my opinion been poorly managed with lacklustre performance and at its core a woefully inadequate technology platform.

Over the 12 years of its operation, Realestate.co.nz has at times taken significant strides forward, whist at the same time has been offered significant competitive opportunities to attain leadership in the digital marketing space. Sadly, over recent years these opportunities have been squandered as a consequence of poor investment decisions made by the executive and board of the company. It is simply not true that the business is the leading property website and for the board of REINZ to be told that is at best misleading.

I hold the board of Realestate.co.nz responsible for what I think has been poor governance and worse still incompetent operational management of the company. This past year’s performance is appalling but is not an isolated year, prior years demonstrate that the opportunity has been missed to leverage this critical digital asset for the benefits of all members of REINZ.

Realestate.co.nz is a technology platform operating a digital marketplace, however over the past 5 years there has been not a single piece of innovation that can be demonstrated to in anyway challenge or in any way concern the competition. The current website environment is an embarrassment, comprises a capable but ageing 2010 ‘Classic’ site matched to a poorly executed ‘New’ site that after 18 months in the market is clearly recognised for the failure it is. Worst though are the mobile apps which nowadays as the platform of choice for more than half the audience of buyers and sellers; have been seriously neglected for years, having been at their launch the most innovative challenge to the competition.

In my opinion the management of the company has not demonstrated the competence required to run a digital business. I believe at the heart of the issue is the lack of technology and digital business experience within the board. Over the span of 12 years and 19 directors only 2 came to the role with the slightest relevant experience, over the past 8 years just 12% of the board representation has provided any relevant experience.

Realestate.co.nz was created as a ‘not for loss’ operation, as an asset for the industry – however to remain relevant and competitive requires reinvestment to grow, simply because in the digital classified arena if you are not growing you are declining and let’s be clear growth is not just providing annual results of revenue growth. Growth is asset value and consumer advocacy and I see no growth in either. The Chairman’s report this year reads like a facsimile of past years. Thanking the industry for support and speaking of challenges and improvements made but sadly these improvements must be in the minds of the board. For the industry, your customers are losing confidence, faith and trust in Realestate.co.nz – I know, I personally as one of your passionate and technically competent re-sellers is finding it increasingly hard to advocate the site to my clients, when it offers so little real value against its competitors, and as a technology platform it is rapidly becoming out of touch and I fear irrelevant.

I did not get the chance to finish this address, I was just over half way through when Dame Rosanne Meo stepped in and requested I wrap up. She stated that whilst she recognised my passion for the business of Realestate.co.nz, she judged that my opinions expressed were not the view held by the board of Realestate.co.nz. She said the board of REINZ were supportive of the Chair and board of Realestate.co.nz and as Realestate.co.nz is a separate company in which REINZ is a 50% shareholder this forum of the REINZ AGM was not the platform for discussing a separate company in which REINZ was just a shareholder.

I did not object to her interruption of my address, I respect her opinion and I politely and graciously returned to my seat. I was though naturally disappointed as I strongly believe that the performance and governance of Realestate.co.nz is a critical matter to REINZ, something that should be addressed.

I contend that the industry, that being the members of REINZ should have confidence that the operation and governance of Realestate.co.nz is being undertaken to optimise the consumer experience as a critical search portal, the customer value as an effective marketing platform for clients’’ listings and the asset value of the investment that REINZ holds in Realestate.co.nz for the benefit of the organisation and the industry. This latter criteria is the one that most concerns me as I fear the board of Realestate.co.nz have little appreciation of the true asset value – not a difficult assessment to make given the transparency of publicly listed property portals around the world.


SQUANDERED OPPORTUNITY

Let’s cut to the chase a bit here. The cold hard fact is that in my opinion the board of Realestate.co.nz have squandered a golden opportunity.

At the inception back in 2006 the focus was very clear – why let the traditional print media companies or their arrogant ‘start-up’ siblings dictate the future media platform of digital which was so clearly going to be the platform of the future, when we the industry, can compete and operate such a platform. This was the smart strategic insight. It proved so smart and by 2010 it was a successful strategy as it defeated the REA aspirant AllRealestate and thwarted the progress on Trade Me Property. This was the time when the board did assess the future equity value of the asset they were creating at the time when global property portals’ market cap’s shot skyward. The directors did star gaze and wonder if this asset might best be sold off for tens if not hundreds of millions of dollars, with that windfall gain being funnelled back into the industry for the benefit of the industry and its members.

Sadly, that mindset diminished, and the focus became beating Trade Me and attaining a goal that was illusive at best, and more than likely impossible – that of surpassing Trade Me’s audience and that is why the single-minded focus from 2013 became consumer advertising on TV and all other media with no thought to the investment in the technology.

As that strategy was followed, so the competition arose and that 100% audience gap stubbornly remained, years past and the notional asset value of Realestate.co.nz began to erode and that is where we find ourselves today. A still massive audience gap to the market leader in Trade Me, new competitors nipping at their heels and a technology platform creaking and crumbling from a lack of investment. At best the value of the asset now can be measured in single digit millions of dollars if it was even of value to anyone. This is the reality of a missed opportunity that I think the whole industry needs to know.


Addendum

This article was drafted between Monday 25th and Thursday 29th November, the Monday being the date of the REINZ AGM.

I was very tempted to post immediately after the AGM, but thought I would wait. Just to see if I had sparked any reaction, feedback or question, 4 days later nothing. Nobody in attendance at the AGM has made contact.

At the AGM, as soon as it had concluded I waited around. I was approached by the Chairman of Realestate.co.nz Fairfax Moresby. He asked me in a friendly manner ‘why I had not picked up the phone and chatted with him to share these concerns’ - I told him that I had chosen to reach out to the shareholders and not the executive or Chairman. That was decision I have taken , I did not feel the approach by me to either of these parties to tell them what they were doing wrong (in my opinion) was either appropriate or would be taken in the right manner.


OneRoof - a 6 month review

by Alistair Helm in


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OneRoof has now been active in the property portal space for just over 6 months and I thought it would be of value to review its success and see what if anything has been the response of the competitors.

When I reviewed this new aspirant back in April, I highlighted what I believed would be the challenges it would face in securing listings and engaging an audience. As ever, these are the two inextricably linked components of a dual-side market that are at the heart of a property portal. For without content, there is no value for a consumer audience, and equally without a consumer audience there is no value for content providers, especially if they are asked to pay for content display.

After 6 months in the market, OneRoof has made significant gains in one of these areas - listing content. From the starting position of having just Bayleys as the foundation content provider they have added a 3 more of the major 5 companies in the industry.

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Lacking just Harcourts from the stable of content, I would say that OneRoof now has close to 80% of all real estate agent listings. A significant gain in the past 6 months. At this time no real estate company is paying for a base subscription of unlimited listings, but clearly any misgivings that the industry owners of Realestate.co.nz had in supporting a competitor have been largely ignored in favour of exposing their clients’ listings to as wide an audience as possible.

Touching on that point of ‘free’ base subscriptions, nothing as ever is for free for long and I would suspect that OneRoof will adopt a ‘pay per listing’ model or monthly subscription sometime in 2019. In the meantime their premium product offering is being extensively marketed to agents either as a standalone offering or as an appealing bundled offering with print pages in Herald Homes. This bundling is a very powerful model that uniquely will see a high priority given to OneRoof on the marketing portfolio offered by agents to their clients and I expect to see emerging revenue results for OneRoof in the 2018 full year accounts of parent company NZME.


CONSUMER AUDIENCE

Now this is where I fear OneRoof has a long way to go to seriously challenge the powerful leading incumbents of Trade Me Property and Realestate.co.nz, not that they are not vulnerable, but they do hold a strong and well established brand franchise.

I do not have access to the most accurate and insightful measures for digital platforms, that being Google Analytics or Nielsen digital ratings. I therefore have been tracking the relative performance of OneRoof and its competitors using a global tracking tool by the name of SimilarWeb. This Spanish company analyses web traffic to create a global ranking of all websites and thereby provide detailed estimates for monthly audience and source of audience.

I recognise that the absolute data points reported on SimilarWeb may not be accurate, however when analysing OneRoof, together with Homes.co.nz and Realestate.co.nz on the same platform over the past 6 months it is possible to infer objectivity to their relative performance. It is this comparative perspective that I am interested to present and analyse. Unfortunately SimilarWeb is unable to provide data for Trade Me Property as it is not possible to extract the property data from the main domain of Trade Me as SimilarWeb only tracks primary domains.

OneRoof has grown a relatively sizeable audience in a short space to time. An audience that within the 3rd month had surpassed Homes.co.nz and is currently around half the size of Realestate.co.nz in estimated scale of visits. Again it is worth noting that SimilarWeb can only monitor web based traffic and therefore no analysis has been undertaken on the relative scale of audience to mobile apps for any of these platforms.

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Whilst as stated SimilarWeb does not track Trade Me Property it is possible to infer a relative traffic in proportion to Realestate.co.nz based on the comments made at the recent investor presentation of Trade Me where it was stated that their traffic is ‘>2x’ the unique audience of their largest competitor.

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In relative terms given how short a time OneRoof has been in operation it appears to be attaining a scale around 25% that of the largest player in the market which is impressive.

However as ever statistics can be misleading when you only observe the headline numbers and fail to dig a little deeper.

When it comes to online traffic a key question that needs to be asked is what is the source of that traffic, is it:

  • Direct traffic - driven by domain name URL being keyed in, this is a key measure of brand awareness?

  • Search engine traffic which comprises organic search a reflection of deep Search Engine Optimisation, together with paid search traffic from Adwords?

  • Social media traffic which also can be through organic or paid traffic?

This is another reason why I favour SimilarWeb, as in addition to tracking traffic on the web for all sites it also track the origin of traffic and this is so enlightening within this segment of property portals in NZ. Detailed below is the comparative make up of the traffic to each of the 3 portals and one data point above all leaps out.

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Close on two thirds of all traffic to OneRoof last month was referral traffic, compared to virtually nothing for Homes or Realestate.co.nz. What is the source of this referral traffic? You don’t have to look far to find out that the vast majority 99.92% of all this traffic originates from NZHerald.co.nz.

From day one OneRoof has benefited from the fact that the NZ Herald website rebranded all property articles as OneRoof articles and all property articles are hosted on the oneroof.co.nz domain powering this massive traffic.

So the reality is that two thirds of OneRoof traffic originates from news articles and ad links on the NZ Herald website. I do however concede that once on the OneRoof site, these consumers do browse listings as the number of pages per visit is 4.2 according to SimilarWeb - that compares to 8.5 pages per visit for Realestate.co.nz and 6.4 pages for Homes. I should also point out I have been tracking all of these sites since March and there has been no variance in any of these metrics.

The fact that OneRoof is leveraging the media presence of NZ Herald to drive audience is no surprise, I foreshadowed it in my April article under the section “Media Family”. It’s been the highly successful strategy of Domain.com.au in Australian which leveraged the Fairfax media stable of digital platforms to build a massive audience. However their market leading competitor Realestate.com.au was not slow to bring this to the attention of ist shareholders who wondered how Domain had grown such an audience. Their investor report of 2016 showed that Domain traffic was made up of 70% news articles and just 30% property listings as compared to Realestate.com.au which equally leveraged News Corp digital property news for traffic but only to the tune of 8% of total traffic.

As a further data point to the relative audience across the 3 main portals I would offer up my current property listing which has received 5,276 page views on Trade Me, 1,789 page views on Realestate.co.nz and 382 page views on OneRoof - the listings received similar premium advertising packages on all 3 platforms as part of a significant marketing campaign. These stats whilst a sample of one would seem to support the conclusion that OneRoof has a long way to go to build a consumer franchise to support the premium advertising solutions; having said that they have everything going for them, a great platform and user experience, a strong brand building programme and massive industry support.


COMPETITIVE RESPONSE

As to that comment at the start of this article questioning what if anything has been the reaction of the competitors. Well to be honest when it comes to Realestate.co.nz I suspect nothing. Realestate.co.nz continues to show no signs of any activity - no decision yet even after 18 months as to whether they have a viable new site; nor as to an aligned and unified view of their shareholders, who rightly could and in my view should have seen OneRoof as a real threat and looked for unity within the industry to rally around the industry owned portal.

As for Trade Me, they have quietly got on with the job in hand launching an excellent new premium product which is delighting agent customers, their shareholders and the consumer. In the long term I fear for the future of Realestate.co.nz as OneRoof is undoubtedly going to ‘eat their lunch’.



Quarterly Property Review for NZ outside of Auckland - Q3 2018

by Alistair Helm in


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The Auckland market is now firmly a buyers-market and the near term outlook is for a continued weakness well into 2019 based on the latest clearance rate and stagnant sales volume. However looking beyond the City of Sails reveals a property market for the rest of the country still experiencing healthy activity, with prices edging upwards, although that rate of increase is slowing.


SALES VOLUME

The latest 12 month total of property sales outside of Auckland up to and including September of this year was 52,998. This represents a small fall of less than 100 as compared to this time last year. The market volumes are certainly plateauing and have fallen by 15% from the peak of sales in August of 2016.


PRICING

The median price of property sales continue to edge upward with a 9% year-on-year increase in September taking the median to $466,730. Whilst the past year has seen strong year-on-year increases of between 6 and 8 percent, the actual median prices have been fairly flat indicating that the next 12 months will likely see percentage increases slip to virtually nothing.


CLEARANCE RATE

The latest analysis of the clearance rate (which tracks the moving annual total of property sales against the same time period of new listings indicating the core activity in the market) shows a slight weakness in the September data in many ways similar to the weakness witnessed in a more significant manner across the Auckland market. As highlighted in the analysis of the Auckland market the opposing forces of supply, finance and broader economic indicators are leading to a weaker market and maybe these self same factors are beginning to impact the market outside of the City of Sails. It is a fact that the rest of NZ tends to follow the Auckland market and this quarters analysis would seem to support this hypothesis based on sales volumes, median price and clearance rate. The next few months heading to the year-end will provide that evidence when we come to report on the Q4 update in January.








The Auckland Quarterly Property Review - Q3 2018

by Alistair Helm in


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The Auckland market is in the midst of one of its most interesting phases witnessed in the past couple of decades. Typically we see Auckland experience a see-saw market - alternating between a booming market or a retreating market.

For fully the past 11 months, the market, coming off a steady 2 year decline in sales has stubbornly, resolutely and somewhat belligerently refused to succumb to further decline; however and this is the unusual part, the market has not in anyway shown any signs of a resurgence, yet.


VOLUME SALES

Analysing sales volumes is critical in understanding the market and more importantly in identifying the future direction of the market. Simply put, rising sales tend to foretell a future rise in prices and equally the converse is true - this is somewhat simplistic but helpful as a rule of thumb.

So what to make of the market we have experienced since this time last year. A year ago the 12 month total of sales for Auckland stood at 22,781, it was the 23rd consecutive month in which sales volumes on a 12 month rolling basis had fallen. From a peak in October 2015 when the total was 34,060, volumes had fallen by 33%. However for the past 11 months sales volumes as seen on a 12 month rolling basis have not changed. Not changed; as in remained within a range of just less than 1,000. Here are the raw numbers and you can see how flat the sales have been.

October 2017: 22,278

November 2017: 21,788

December 2017: 21,608

January 2018: 21,614

February 2018: 21,619

March 2018: 21,350

April 2018: 21,435

May 2018: 21,554

June 2018: 21,561

July 2018: 21,661

August 2018: 21,645

September 2018: 21,615

This is an astonishing series of numbers - the mean variance from the median of 21,614 is just 34, representing 0.2%.

This unusual plateau in sales volumes is clearly seen in the chart below which shows the past 10 years, with the inset view of the full data since 1993. Simply put there has not been in the past 25 years a period when such a prolonged plateau has occurred.

Such an unusual trend calls for an explanation. Here are my thoughts around why, and also what may be the future trend.

The period from the peak in 2005 until November of last year was the classic end of ‘the Golden Summer’ - prices had reached a level that was becoming unsustainable and coupled with tighter lending restrictions, investors particularly, parred back activity in the market as yields became unsustainably low given the likelihood of low capital growth.

There can also be no ignoring the fact that the period of the past 11 months paralleled the duration of the new government, although I would judge this more correlation than causation. However the new government has placed housing atop the agenda, added to which the publicity of KiwiBuild has potentially enthused may first home buyers, but at the same time frustrated others as it clearly demonstrated just how long it takes to activate the supply side of the market.

Ignoring the political influence, the most likely explanation is that a plateau in sales volumes is the outcome of strongly opposing forces - cheaper finance, matched to limited supply of properties coming onto the market, added to which the tail end of strong price appreciation and a strong economy, all key factors continuing to drive demand. Facing off against this is tighter lending criteria in terms of LVR but also tighter debt servicing requirements from lenders, added to which have been growing fears of global economic uncertainty and that same consistent issue of limited supply of properties coming onto the market, in this instance working against the market.

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PRICING

So whilst sales volumes have plateaued, what has been the resultant movement in median price? It would come as no surprise to see that median prices have also plateaued. Proving the premise that rising volumes foretell rising prices as does the opposite. Equally a ‘standoff’ in sales trends to lead to a ‘standoff’ in price movement. Over 2 years ago Auckland median sales price topped $850,000 and since then prices have barely moved. For 6 of the past 9 months year-on-year variances have been down, albeit by no more than 2%.

The one variable that has not been analysed in the foregoing charts is new listings. Adding this into the mix provides what I consider the most robust lead indicator of the property market, that being clearance rate.


CLEARANCE RATE

In the last quarterly report published in August, with the data including July, I was confidently foretelling of a developing upswing in clearance rate and judging that the comments made at the time by the Reserve Bank Governor, that prices may be as likely to rise as to fall could be accurate on the upside. Well a further few months of data are now showing that prices may in fact be more likely to fall in Auckland as to rise. For the much heralded recovery in clearance rate has had a significant set back as shown in the chart below.

The fact of the market is that a stagnant level of sales is facing off against rising level of new listings which have lead to a drop off in the clearance rate which is significant and a setback to the heralded recovery. The rise in inventory is not to be unexpected at this time of year, however, remember this clearance rate is based on 12 months of moving total data of both new listings and sales and therefore excludes seasonal influence and more accurately therefore reflects true underlying market trends.

It therefore looks more likely that the Auckland property market is going to continue to face strong head winds in the coming months with a potential slide in prices as a buyers-market takes hold and sellers learn to adjust expectation in order to win that sale and in so doing allow themselves to become tough negotiators with their buyer-hat on.