Apartments and townhouses are selling for less than people paid for them, and in record numbers.

Frances Cook joins RNZ Nights to break down why smaller properties are taking a bigger hit than the rest of the property market and what it means for first home buyers, investors, and owners in negative equity.

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Hey, team, it's Frances.

Well, there was a very interesting article recently on RNZ that showed some changes in our housing market.

We all know that things have been slowing down a little bit in property recently, and values have been a bit lower.

What you might not realize is that those values aren't hitting evenly.

When you look at the types of properties that are going down in value, it's 41% of apartments, so selling for less than their owners paid for them.

Now, 18% of townhouses and 11% of houses selling for less than their owners paid for them.

So that's a pretty big difference.

And yet the devil is in the detail.

Do I think this tells us something about what types of properties people want to buy and sell?

Yes, definitely.

But it's a little deeper than what you might think at first glance.

Balance of those numbers.

So what do you need to know and what can you do if you are in one of those houses?

Well, RNZ Nights with Emil Donovan asked me to come on and talk about it.

They very kindly said that I could share that again with you here.

So enjoy.

For a lot of people around the country, buying a house may have seemed like an ironclad investment, but new data is showing that may not be the case anymore.

And now some new figures show nearly a fifth of townhouses, nearly 20%, are being sold for a lower price than what their owners paid for them, in some cases facing devastating losses in the six figures and above.

So how concerned should homeowners and especially townhouse owners be right now?

And is this an opportunity for buyers?

Well, finance journalist Francis Cook joins me now to break it all down in a bit of detail.

Lovely to have you back, Francis.

Lovely to be here.

So, I mean, how bad is this from your point of view?

I mean, I think it's somewhat expected.

We did have the flood of developments which were very needed, but it all sort of followed one general type of house.

You know, there was a real flood of townhouses specifically.

And I think when you dive into the details of what's happening here with the house, price falls.

I mean, property is down across the board.

But what we're really seeing here is when we have the much smaller townhouses, maybe the two bedrooms, the ones that don't have parking spaces, those are the ones that are being particularly hit hard here.

It's not necessarily all townhouses are down.

When you see things like the three bedrooms, they've got a decent backyard and they've got car parking.

They're hitting sort of around about the same as the rest of the property market.

It is those much smaller townhouses, the cheaper builds that were being targeted by investors or very sort of marginal first home buyers, those have really been hit and that is really hard for people.

So is this a situation where we have this housing crisis?

I mean, in some people's minds, the housing crisis continues.

And so we built a whole lot of housing, a whole lot of housing in a relatively short period of time.

But it's turned out that the kind of housing that we build, no one really wants to buy or live in.

Yeah, I think it's a really good reminder that property is supposed to be a very long term bet financially, whether you're thinking of it as an investment or a home.

And you know, those two things can be very different, but either way it is supposed to be quite long term.

And I think when we're doing things like skipping the car parks or making it a very small floor plan, one of the other things that often impacts, you know, they're seeing, it's quite interesting, the devil in the detail here, where the townhouses sort of on the ends of a row are often holding more value because they get more sunlight.

And so I think it really comes back to the fundamentals of people.

People don't just want to live anywhere, they do still want good quality housing.

And so some things sold for prices that you look back now with clear eyes.

It's so obvious what happened.

It didn't feel that way in the moment.

So I do feel sorry for people.

I think it's worth worth remembering though, the median loss here is more around the sort of the $50,000 mark.

And that is comforting.

Where there are some big outliers here with some people that have taken really big falls in value of property.

But there are sort of more manageable average figures.

So hopefully people don't panic too much when they look back at those average figures.

I mean, some of those outliers are pretty amazing though, aren't they?

There's one example.

Yeah, in Ringwera, the person bought it four years ago, they've sold it, they lost 800.

They nearly lost a million dollars.

890,000 Bucks.

Gee, that is just.

That's an eye opener, Francis?

It is, it is.

And I would say like those are coming from places that are really hot property markets.

You know, if you're looking at someone like Remy Ray, that is extremely high property values in the first place.

So I'd love to know.

I don't have the figures there on what percentage that is, but eye watering.

No matter what do you think?

I mean you mentioned earlier on that the kinds of houses that are losing value, as it were, or that are being sold for a loss tend to be in the sort of property speculator, marginal buyer kind of demographic.

So you think the speculators who would have bought up townhouses looking to make a quick profit, you think that that's the demographic that will be most affected by this?

Yeah, I think there'll be a lot of investors hit by this and that's sort of nobody ever wants to lose money, but that's sort of part of the risk when you invest.

Right.

So I'm somewhat less concerned for the investors who might be choosing to sell.

I'm more concerned for if it was a first home buyer who maybe was quite a low deposit mortgage, they will be hit really hard by this and they could be very worried and they won't have much margin for error.

So that's more the cohort that I worry in a moment like this.

Do you think there's maybe an element too that of New Zealanders having to get used to the idea that this is the type of house that many of us will be living in into the future.

And it's not a quarter acre block with a backyard and a white picket fence and a great big double garage.

It is a townhouse.

These are more space, economical.

But maybe that's not, maybe that's a cultural change that doesn't necessarily get accepted or embraced overnight.

Well, yeah, it's quite interesting because there was also some research that came out earlier this week as well talking about older generation who usually look to downsize but also are not that interested in townhouses.

And so I do think there's a bit of a crunch point and we're seeing that now in terms of how we envision where we want to live and what people can afford.

What is interesting to me is we are now seeing properties come back on the market and they're selling a little bit quicker than they were.

We've got figures from Realestate Co NZ showing townhouses are selling average of 120 days at the moment.

Standalone houses, it's around 96 days on average and that is marginally better than things were before.

So we're getting a little bit of those signs of buyers and sellers coming into a bit more reality with each other.

I mean, let's not, let's not sugarcoat it.

That is still longer days to sell than things were before, but it's less bad than it was.

So I think what we're hitting now is a bit of a crunch point where things have become so expensive for so long, people have held off trying to make decisions either way, buying or selling, and now we're hitting that crunchy point where people just have to live their lives and they have to make a decision.

And people are now having to make some quite tough decisions.

I asked in the intro to the program, somewhat tongue in cheek, is this a sign of the model shifting to a sort of buy land, not houses kind of calculus?

I guess.

And I do wonder about your thoughts on this.

Even at the peak of the property explosion in New Zealand, when you're buying a house for lots and lots of money, are you really buying the house or are you perhaps sort of buying the potential of what you could do with that area of land that you're buying?

Are you paying that much money for the 150 square meters of house that you're actually living in or the 600 square meters of property that maybe someone will come along in 10 or 20 years and buy off you for loads and loads of cash so that they can develop it?

Oh yeah, exactly.

I mean, you may have been being tongue in cheek, but you're actually spot on what you're doing.

I mean, most of the value in any property you buy is in the land.

That's why apartments are cheaper, that's why townhouses are cheaper, and that's why a standalone home is more expensive.

So much of it comes down to the square footage of land under the house.

And then the property that you've got on top of that is quite minor in terms of what it adds to it.

That's why location is so important.

That's why the type of property you get is so important.

It basically comes down to the value of the land and then a little bit extra on top for the house.

And so there are absolutely people who buy houses thinking, in the future, when I go to retire, I could sell this to a developer and you could fit three townhouses on here.

That's absolutely a strategy for some people.

Is this a market opportunity if you're a first time buyer, do you think?

Oh, 100%.

If you are a first home buyer right now and you're feeling secure in your job and you've been saving diligently and you've got that house deposit.

The silver lining here is that if someone is trying to buy now, they're actually doing quite well.

It is absolutely a buyer's market.

They have a lot more time with these longer average days to sell.

So that is giving them a bit more time to do their research, to really look into things, to give it a try.

We had predictions that this was going to be the year that we hit the bottom of the curve and things started going back up and then Iran happened and now interest rates might be going up and all of that makes it far more difficult for property prices, which is great news for the first home buyers.

It's always a winner and a loser in these things.

So, you know, first home buyers rejoice for once.

So I mean that's, that's for the first time buyers.

If there's someone listening to this Francis, who bought a townhouse three years ago and are staring down the barrel of negative equity, I mean, what would your advice be to them?

Obviously everyone's situation is going to be different, but is it kind of the, you know, this is a long term thing that you're doing, buying a house and you know, don't do anything rash?

Exactly.

I mean, the first thing is a lot of the impact of negative equity will be emotional.

If you know that you owe more to the bank than, than you could sell it for, then it is a totally normal and rational response to feel a bit panicky and to worry about what the bank would do.

But first of all, know that the bank doesn't actually want to sell your house from under you.

I get that question all the time.

You know, is the bank going to get me in trouble?

If you just keep paying your mortgage, the bank will leave you alone for the vast majority of situations.

I can't even think of a situation where that wouldn't be happening.

So first of all, don't panic.

You're not going to be in trouble with the bank.

Just keep paying the mortgage.

And if you run into a situation where you do need to sell for whatever reason, the first thing to do is talk to the bank.

Because the bank also doesn't want a mortgagee sale or a rushed sale or for you to sell and still owe them money.

They want that sweet, sweet interest.

They figure something out.

They want that sweet, sweet interest.

It's a pain in the butt for them as well to sell it.

So talk to them.

And if you're scared to talk to them, talk to a mortgage advisor, because there's many options to help you with negative equity.

All right.

Interesting stuff, Francisco.

Thanks very much as always.

Cheer to you, Ginseng.

Thank you so much.

This podcast can only give you general information about how things work in most situations.

It's not individual financial advice.

If you're after that, a financial advisor is always the best bet.