Before the 10h auction had even begun, auction room 1 at major New Zealand real estate firm Barfoot & Thompson was already packed. The crowd stood in sharp contrast to reports of Auckland's cooling housing market. Once the bidding began, however, it became clear that enthusiasm for buying and selling was limited.
Auction sales decline
The morning auctions at 10h and 11h on 16 November involved 22 homes in total. After the auctions, the results screen at the venue showed that only 5 had sold, 11 had attracted no bids and 5 had been passed in because the highest bids fell short of their owners' price expectations. The final property's auction was postponed—perhaps it had been scared off by the subdued atmosphere.
In New Zealand, the main ways to sell property include auction, tender and negotiation. Auctions are a direct and effective method of sale. With no price ceiling, they can create urgency and competition among buyers, ultimately securing a high sale price. Compared with other methods, auctions are therefore considered a way to maximise competition among buyers and help buyers obtain the best sale price on the market.
However, the Real Estate Institute of New Zealand's (REINZ) October statistics show that the number of homes sold by auction nationwide continues to decline. Just 869 homes sold at auction in October, down 42% from the same month last year—a fall of almost half.
Auckland has traditionally been the city with the highest proportion of sales made at auction. In October, 464 homes sold by auction, down 44% from October last year.
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Buyers stop chasing higher prices; homes have asking prices but no takers
Both buyers and sellers hope to choose the best time and use the most effective method to maximise their own interests.
What does the decline in auction sales tell us?
In the current market, sellers can no longer easily bask in the attention and sit back as competing buyers drive up the price of their home. A Chinese seller offering a two-bedroom brick-and-tile home in Panmure received no bids at an opening price of NZ$400,000. The owners of another 10 homes that day similarly missed out on the thrill of buyers chasing their prices.
Buyers, too, are no longer swept up in excitement. Chinese and other Asian buyers still made up a noticeable share of those in the auction room on the morning of 16 November. One young Asian couple stood out. They were the sole bidders for a three-bedroom, two-bathroom home in Remuera. With their bid below the seller's price expectations, three rounds of negotiation and several increases followed before the expected price was reached. With no competing bidders, the property sold for NZ$1,300,000, just 1.15 times its RV. Its RV as at 1 July 2014 was NZ$1,130,000.
The auctioneer worked hard to mix Chinese into his calls, urging Chinese buyers to raise their bids. A young European man opened the bidding for a four-bedroom villa in Parnell. His bid fell short of the seller's expectations, but he remained reluctant to increase it. An older Chinese couple then entered the bidding, catching the auctioneer's interest. “1,600,000”, “Give me 1,800,000”—the auctioneer spoke in Chinese, urging the older buyers to make a substantial increase. Through several rounds of negotiation, they maintained that their maximum offer was NZ$1,700,000. The seller also refused to compromise, and the property was ultimately passed in.
The same thing happened to another Chinese buyer hoping to become a neighbour of former New Zealand prime minister John Key. He came prepared, accepting the opening price of 5,000,000. After fierce competition with another Chinese bidder, he made a hefty increase to see off his rival, hoping to demonstrate his determination to buy. Yet the final bid of 6,350,000 still failed to persuade the seller. In the final round of negotiation, the Chinese buyer also refused to raise his offer further. The seller was reportedly seeking NZ$7,000,000.
“The gap is just too big,” he could not help remarking.
Market observers had previously noted that sellers' price expectations remained high in the current market. Buyers, especially investors, were highly price-sensitive and cautious. If sellers did not lower their expectations in line with market conditions, selling could become harder and take longer.
According to the Real Estate Institute of New Zealand's (REINZ) October figures, the nationwide median time to sell a listed property increased by 2 days year on year, from 32 days in October last year to 34 days.
Falling house prices deepen market caution
The Real Estate Institute of New Zealand (REINZ) has released its October statistics. The figures show Auckland's median price in October fell 3.2% year on year to NZ$850,000, the largest annual decline since December 2010.
In its latest Quarterly Economic Forecast, released in November 2017, ASB noted that investors remained very cautious and the housing market would remain subdued.
“Upcoming tax changes are making investors more cautious, while changes in the closely connected business operating environment are also having knock-on effects on investors and the property sector.”
The report also noted that the new government's restrictions on immigration would tighten labour supply and push up wages. Together with an increase in the minimum wage from the current NZ$15.75 an hour to NZ$20 an hour in 2021, these factors would raise household incomes. However, the weak housing market was making people reluctant to spend freely. Falling house prices were affecting consumer confidence and reducing demand for durable consumer goods.
Overall, the housing market is the area with the greatest uncertainty. ASB economists believe that, regardless, housing shortages in Auckland and Wellington will support house prices.