Residential property sales are tracking down in most parts of the country, pulling agency commission revenue down with them

By Greg Ninness

The first quarter of 2017 was a largely lacklustre one for the residential real estate market, with the number of sales down in most parts of the country compared to the first quarter of last year.

According to the monthly sales figures published by the Real Estate Institute of New Zealand, 19,064 residential properties throughout the country were sold in the first quarter of this year, down 12.8% compared to the first quarter of 2016.

The sales decline would have had a spillover effect into the amount of commission revenue the real estate industry earned, although in most parts of the country the decline in total revenue was moderated by generally higher prices, which would have increased the average commission on individual sales.

Interest.co.nz estimates the industry would have earned around $358.1 million in gross commissions from residential sales in the first quarter of this year, down 7.4% compared to the first quarter of last year.

However sales trends have varied significantly around the country.

Two regions, Manawatu/Wanganui and Taranaki, went against the national trend and posted substantial increases in sales numbers in the first quarter of this year compared to the first quarter of last year (see table below).

In both regions, sales have risen on a quarter on quarter basis for the last three years.

In Manawatu/Wanganui, sales in the first quarter of this year were up 11.8% compared to the same period last year and up 38.2% compared to the first quarter of 2015.

In Taranaki sales were up 12.1% compared to a year ago and up 18.3% compared to the first quarter of 2015.

That makes the two regions the last parts of the country that are still in boom mode, with sales declining in the rest of the country.

Auckland commission revenue down 10%

In Auckland, the country’s largest real estate market by far, sales in the first quarter of this year were down 15.3% compared to the same period of last year, and down 27% compared to the first quarter of 2015.

That has pushed the estimated first quarter commission revenue in Auckland down by 9.9% compared to last year, and down 16.1% compared to two years ago.

It is ironic that the downturn in sales numbers and the slide in the industry’s estimated commission revenue is occurring at a time when selling prices are hitting or remaining close to record highs in most parts of the country.

However, the quarterly sales data is consistent with other trends suggesting a two tier market could be starting to develop, particularly in areas such as Auckland where house prices are highest.

A pattern which is starting to emerge in the Auckland market is that higher priced properties, and those in the most desirable locations, are selling more readily than lower priced homes or those in less attractive locations.

The most likely reason for this is that wealthier buyers remain active in the market while first home buyers are being increasingly priced out of the market, and investors are less active because of the poor rental returns residential investment properties can provide, and restrictions on mortgage lending to investors introduced by the Reserve Bank.

That presents particular challenges for real estate agencies and their salespeople, particularly those active at the lower priced end of the market.