More than a third, or 35.1 per cent, of apartments sold in the second quarter of this year were sold at a loss, compared to 7.1 per cent of houses.

It was the highest figure for apartments selling for a loss since 37.7 per cent in the first quarter of 2012 – more than 12 years ago.

In Auckland, the loss-making share for apartment sales was even higher, at about 44 per cent in the second quarter of this year. About 70 per cent of New Zealand’s total stock of apartments is in Auckland.

However, CoreLogic says it’s cautious of concluding apartments are being abandoned by their owners at fire-sale prices.

For a start, says chief property economist Kelvin Davidson, hold periods for these loss-making apartment sales have actually been a touch longer than across all properties (a median of 4.2 years versus 2.7 years).

Put another way, only about 15 per cent of the loss-making apartment sales had been owned for less than 2.5 years, versus around 45 per cent across all loss-makers.

“In addition, the scale of the losses isn’t too much different,” Davidson says. “The median loss for an apartment in the second quarter was $50,500, versus $50,000 for standalone houses, although apartment values tend to be lower than houses, so the percentage loss is greater.”

CoreLogic’s home value index also shows apartments in Auckland have dipped by only five per cent since their most recent peak in March this year, basically the same as the four per cent drop for standalone houses.

And relative to the peaks from late 2021 and early 2022, apartments in Auckland (16 per cent) have actually dropped by less than houses (21 per cent).

“In other words, there’s no real evidence apartments are in freefall,” Davidson says. “Instead, the rising frequency of resale losses may just represent a rebalancing of their owners’ property portfolios, especially for investors, with some just prepared to take a loss and move on to something they deem more suitable for their plans.”

Losses grow

Across all properties nationwide, the number being sold at a loss continues to grow, the report shows.

It found 7.9 per cent of residential sales in the second quarter were made at a loss, up from 6.7 per cent in the first quarter. It was the lowest figure for any quarter since the third quarter of 2015.

In terms of gains and losses, the median resale profit was $301,673, down from $315,000 in the first quarter and well below $440,000 at the 2021-22 peak, but still above anything seen prior to the first quarter of 2021.

The large gross profits for owner-occupiers aren’t necessarily cash windfalls, instead generally just being recycled straight back into the next property purchase, unless they’re downsizing or moving to a cheaper location.

The softening in the market has shifted the balance of power away from sellers and towards buyers.

The stock of available listings on the market is already sitting at multi-year highs and is possibly set to rise further as some investors who are now bright-line test-free bring forward their cashflow-negative properties for sale.

Davidson says buyers are certainly on the ascendency when it comes to price negotiation – or at least that reduced pool of willing buyers who have job security, and who can actually afford and secure their finance at current mortgage/serviceability rates.

CoreLogic’s home value index (HVI) shows values still 16 per cent lower than the peak from two and-a-half years ago.

Holding on

Hold period still plays a big role in these figures, and resales made for a gain in the second quarter were held for a median of 9.2 years, with the loss-makers only owned for a median of 2.7 years.

“In other words, anybody that’s owned their property for the typical eight to nine years before selling again will almost inevitably get a gross profit, whereas losses tend to be associated with shorter hold periods,” Davidson says.

“In some cases, this can reflect some kind of ‘target return’ approach – especially for investors – where the slower housing market in the past two to three years has simply required owners to hold for longer to achieve their goals.

“However, we suspect it’s likelier in more cases to simply reflect weaker housing sentiment/greater caution, and a desire of more property owners to ‘ride out’ the current soft patch before testing the market.

“Lending restraints and high mortgage rates will probably have kept more people where they are for longer. And also related to that, it might simply be taking longer to find a buyer, with ownership periods stretching out.”

Amongst the main centres, the longest hold period for resale gains was 11 years in Wellington, followed by Dunedin, Christchurch, Auckland, Tauranga and Hamilton, all in a relatively tight range of nine to 10 years. Similarly, across each of those six areas, the median hold periods for resale losses were also fairly tightly bunched at two and-a-half to three years.

Looking ahead, the current soft patch for the wider property market may not last too long as mortgage rates drop and if unemployment peaks early next year.

In turn, the pain and gain figures may remain sluggish in the next quarter or two, before strengthening again in 2025.