It's a Numbers Game
By: Matt Morton
April 01, 2023

Numbers are at the heart of investment property. Of course, there are happy tenants, troublesome tenants, ongoing maintenance, repairs and upgrades, but the numbers ultimately have to work. Different numbers mean different things, but many are often passed over by investors as not relevant to them. These are usually the big picture numbers that I study to interpret what the market is doing and is likely to do. They are relevant to all of us and help to determine the biggest and most important number of them all… what your property is worth.

Sales Volumes
The number of sales in 2022 took a significant dive in the investment sector. It can be challenging to extract the exact sales as sometimes it is difficult to know if the investment property being sold is going to be used as an investment or as an owner-occupied property, and therefore not a strict investment sale. One of the best ways to estimate this activity is by using the student sector as a sample market due to its almost exclusive investment nature.

Reviewing the graph above, the tracked sales from 2012 to 2021 in North Dunedin equate to a 10-year average at 73 sales per year. 2022 provided just 24 sales, which is 33% of the long-term average.

We have also tracked the whole of Central Dunedin for the past six years and extrapolated the likely investment sales. However, this contains the sales of all units and apartments in the area and some of those would have been purchased for owner occupancy, skewing the numbers slightly.

The Central Dunedin area had a 5-year average to 2021 of 71 sales and then 30 sales in 2022 resulting in 42% of the volume of what could normally be expected.

I would suggest given the purpose of this exercise, we have around a third of the sales volume in 2022 compared to the longer-term averages for investment property.

This is important to understand as it is an indicator of buyer behaviour. The number of listings coming to market has reduced, but not to the same degree as the properties selling. This means the buyers are not presenting themselves like they used to, and it tells you that the buyers have choice.

When a buyer has choice, it means they can take their time and be very selective. Poorly presented properties with deferred maintenance or issues hanging over them are quickly discarded by this buyer and they move on to a competing property to see if it will suit them. There is a lesson in this if you are planning to sell in the future.

Yielding Properties
Defining a market yield for a particular location is now very challenging. A glance across the yield data and we can find examples in the 4% range all the way up to the 8% range for 2022. Most were in the lower half of this span, but they also generally recorded low rents compared to the market levels and therefore room to easily increase the rental income. However, with such low volumes of data to go by (less than half of these sales have been tenanted and yield related), it really does make yields and the price of a property very subjective.

As buyers are exposed to an immediate 100% of interest deductibility tax, many fully mortgaged investors cannot make low yields work, and those with varying levels of cash to put into the purchase price all have different views of value depending on their cash levels. The NZPIF have a very useful online tool for calculating the effect of the interest deductibility tax rules on a rental property, which is worth checking out to understand how much buyers will need to top up a tenanted property.

The price of a property has vastly become that old adage of what someone is prepared to pay for it. And to impress them as a seller, you need to present your property to the best it can be to attract the buyers.

As an example, I worked with a Vendor in late 2021 to make a plan for their multi-unit property in Central Dunedin which needed deferred maintenance addressed and some subtle upgrades to parts of the property. In late 2022 we finally went to market and achieved a sale at $2,800,000 (7.2%) in what is considered to be a tough market for multi-units. This was the highest investment sale recorded for the year and the out-of-town Purchaser was delighted with the property and the prospects of Dunedin into the future. There were only a few buyers interested and the measures taken to prepare the property for the sale were what made the difference.

Dunedin Wide Pricing Shifts
Analysing REINZ’s monthly median sales data for Dunedin, the overall median sales price was around $620,000 - $640,000 for the first half of 2021, then rose to around an average of $650,000 for the latter half of that year. The median price peaked in February of 2022 at $685,000 and then by the second half of 2022 was averaging around $600,000 month on month.

January 2023 was a median of $515,000 but medians do not always show the whole picture. This was likely caused by a low number of high value property sales which reduced the median figure temporarily. Time will tell over the next few months to see how prices are tracking.

The REINZ’s House Price Index balances out the differences per month and allows for the values of all properties, not just the sold ones. From January 2022 to January 2023, REINZ calculated the values of Dunedin houses reduced by 12.2%.

What this all points to is a tough market to sell in and prices are very subjective depending on the particular property and buyers sentiment towards your property. Sales are achievable if you take the right attitude and implement robust measures to prepare your property to impress your eventual buyer.

The statements made within this article are in the opinion of the individual writer only and do not constitute legal or specialist financial advice. Please seek independent legal advice when dealing with all property transactions.

Social Share
Written by
Matt Morton
Matt Morton & Co is a local Real Estate company firmly focussed on transparency and upfront values. We believe the process of...