New builds and property sales follow a very close correlation

Recent data shows that new construction consents are growing at the fastest rate since 2002, with the seasonally adjusted "work put in place" up by 15% for the first 3 months of this year. This level is welcome news to the politicians who I suspect have been endeavouring to fast-track new consents and in so doing alleviate the shortage of housing we constantly hear about especially as Auckland's populations expands and Christchurch gets down to the rebuild.

For me the issue I was most interested in with this latest data is as to whether there is any correlation between the level of new builds and the level of property sales and if so what impact one can have on the other.

Diving into the data shows that based on the statistics of the past 12 years, it would seem to indicate as seen from the chart below that the trends of property sales and new construction consents track fairly closely.

The data would seem to suggest that there is a lag between consents and property sales. This turns out to be 6 months; which when aligning the consent numbers with property sales - 6 months in arrears shows an almost perfect correlation.

So having established that there is a correlation, and quite a close correlation at that (accepting that the past 6 months appears to be bucking this trend - more of that shortly) the question is why is that the case?

I can only make a supposition as to this correlation, but my hunch is that it all comes down to confidence. The property market in respect of volumes sales is a visible demonstration of economic confidence, at least in respect of the domestic residential economy. A rising level of sales creates the capacity for people to examine and progress on new construction whether that be custom construction projects (which typifies NZ home building) or group home builders. Increasing sales create liquidity in the property market are fuelled largely by easier capacity for finance and these combine to progress construction projects to the consent stage for design concepts that have been sitting awaiting a financial trigger.

Naturally with such a correlation the converse is also true and is shown through the data that a falling property sales market has a dampening effect on consenting of projects. 

The first quarter of this year as highlighted earlier is though very interesting, as we are for the first time witnessing a divergence of these two trend lines. Given the normal 6 months lag we should by now be witnessing the consent levels begin to tail off as property sales plateaued some 9 months ago. 

The clear assumption is that the construction rebuild of Christchurch and the extra focus on building on Auckland is driving this divergence. This may well be viewed as the successful adoption and implementation of policies at local and national government level.

Trade Me Property continues to struggle

Another month has passed and the continued impasse within the real estate industry as individual companies decide as to their commitment to Trade Me Property continues. This all began late last year and with each passing month I have the sense that the struggle for Trade Me Property grows. They still attract an enormous audience relative to Realestate.co.nz but losing support and loyalty of their customers - the real estate salespeople and business owners must be hurting.

A month ago I reported on the latest analysis of the differential in listing stock between Trade Me Property and Realestate.co.nz. At the time the total inventory advantage fell to Realestate.co.nz with Trade Me having just 92% of the listings.

A month later and the relative advantage has moved further towards Realestate.co.nz. For the data presented below I have made an adjustment for the component of 'private sale' listings on Trade Me Property to thereby provide a more accurate reflection of the differential for licensed real estate agent listings. This adjustment revised the 92% figure to 83% of all licensed agent listings on Trade Me Property at the end of April.

The passage of the month of May has resulted in a weaker relative position for Trade Me Property now with just 76% of the listings stock of licensed agents as compared to Realestate.co.nz - close to 1 in 4 of every agents listings is now not being displayed on Trade Me Property.

A significant drop has been seen over the past month in the inventory of Barfoot & Thompson on Trade Me down from 95% to 78% whilst Ray White continue to shows the strongest support slipping just 3 percentage points from 97% to 94%. By contrast Harcourts, the largest NZ real estate company now has less than 2 of every 3 of their listings on Trade Me Property.

With the passage of time so the transition of real estate companies to the new subscription regime has progressed, my latest insight is telling me that almost all of the major real estate companies are now onto the new subscription plan of a payment of a single fee for every listing (rate card $159 + GST). However unlike the prior monthly subscription fee of an "all you can eat" model just because a real estate company is on the subscription plan does not mean all of the listings of that company are displayed on Trade Me Property.

New listings are a more accurate indicator of the level of support for the new pricing model and the data of listing numbers taken from the respective websites shows how the industry is acting in voting with its marketing dollars on behalf of its clients.

In the month of May Trade Me Property only displayed 3 out of every 4 of the new properties listed in the month on Realestate.co.nz. That disadvantage was even more significant when you look at the new listings in May from the largest real estate company Harcourts which displayed less than 6 out of 10 of it's new listings on Trade Me Property; for LJ Hooker it was only half of all new listings. Ray White continues to show what looks to be staunch support with 95% of all new listings in the month featured on Trade Me Property.

New listings are the life-blood of the industry and these figures certainly show that this impasse over listing fees may well have started out as a regional boycott with the mass-removal of all listings, but has now turned into a more damaging and potentially insidious erosion of new listings one-by-one, day-by-day, agent-by-agent.

 

Law change will effect the reporting of auction sales data

Auctions continue to be favoured by the real estate industry as an effective and efficient method of sale. In the past 12 months according to REINZ data a total of 15,865 properties were sold by auction representing over 1 in 5 of all property sales. In Auckland the numbers are far higher with over that same period 38% of all sales being by auction.

However underlying this data may be a correction “waiting in the wings” which may well have a significant impact on these numbers.

With effect from the 17th June 2014 an amendment to the Fair Trading Act as it applies to Buying and Selling at Auction comes into effect. The specific amendment that most interested me was this:

The Fair Trading Act auction rules treat the property as being sold at auction if it is unsold at the end of the auction but the auctioneer accepts within one working day of the auction an offer from a consumer who attended the auction.
— Fair Trading Act : Auctions in Action

I have long held the view that an auction sale should be defined only by the sale occurring on the fall of a the hammer, however the real estate industry continues to hold the view that a property brought to market as an auction and subsequently sold irrespective of when it sells - sometimes up to 7 days later is considered an auction sale.

It was only last week when Peter Thompson of Barfoot & Thompson made this statement in the monthly report of sales for May:

Vendors are still choosing auction as their preferred method to go to market. The success rate at auction is around 80 percent within a seven day period. This is because we are experiencing a trend towards properties that are passed in at auction either selling later the same day or within seven days of the auction

Next month such a comment would be judged to be misleading and inaccurate under the terms of reference of the Fair Trading Act. This advert for April auction results might well present a somewhat different picture.

This move will bring the reporting of auction results much more in line with Australia which publishes 'clearance rates' weekly within 24hrs and judges an auction solely by the fall of the hammer.

A further implication of the amendment is that once the working day period has passed then the transaction will no longer be considered an auction and therefore the use of the Auction Sale & Purchase Agreement will cease to be appropriate as the property becomes open for offers by private treaty between the vendors agent and the prospective buyer. This is of importance for buyers to appreciate as the purchase terms and conditions need to be re-stated on a new S&P Agreement.

Latest B&T data reinforces impact of LVR

Barfoot & Thompson published its Housing Market Update for May highlighting what is a clearly a slowing property market with the year on year sales volume down 14% as compared to May 2013. The trend of property sales is downward, from a peak in October last year the moving annual total of sales by Barfoot & Thompson in the Auckland market has fallen from 13,232 to 12,572 in May.

Within the composition of sales for the month of May the most striking fact is that whilst total sales at 1,109 was down 14% compared to a year ago the sales of property below $400,000 was down 50% - the total sales in May 2013 of property below $400,000 was 301 properties, a year later this segment had fallen by half to just 151.

Just to reinforce these numbers, excluding the below $400,000 segment which still represents 1 in 8 properties in Auckland the remainder of the property sales, those over $400,000 saw sales volumes slip just 3% down from 991 in May 2013 to 958 a year later. So almost all of the 14% fall in total sales is as a result of the collapse of the sub $400,000 segment.

It can be no coincidence that this segment of the market has been the hardest hit by the withdrawal of funding for high LVR mortgages which are primarily for 1st time buyers seeking an entry level property which in Auckland has traditionally been this sector. 

The LVR restrictions came into effect in October of last year and since that time sales in the 8 month period for property at this lower price bracket of less than $400,000 has totalled 1,541 property sales a year earlier it was 2,123, nearly 600 less purchases over that 8 month period, at a time when sales volumes overall barely changed. The chart below very clearly shows the impact of the LVR - performance before October certainly showed a weakening in the lower price segment of the market; however after implementation the impact has been striking with the red bars for the lower prices segments showing the decline in year on year sales volumes. The retardant of LVR restrictions has certainly quelled the fire of the property market which  was burning brightly this time last year.


"Where is my property?" - Lost in Canada

We all know, or I would hope we all know that digital marketing is the primary focus for real estate; more people, spend more and more time online on mobile apps and websites searching for property to buy or rent. This is the mantra that I was extolling to the real estate industry back in 2006 and yet I still sense that the message has not got through to all of the community.

I am a fan of technology and love to explore new apps and gadgets but still rely on the ones that do the job and do it simply. The Realestate.co.nz app is a great example - it delivers a simple solution defined as "discovering property around me". I fire up the app and it shows me all the properties that are for sale or rent within a kilometre or so of where I am standing. Perfect for buyers, perfect for agents and their clients as it showcases the current properties on the market, especially good as it highlights open homes.

Or so you would think, until you discover that unless you were standing on the corner of Lloyd Avenue and Braidwood Avenue in Peterborough, Ontario in Canada.  If you were not at that exact point you would have no idea that the house being marketed at 1 Lloyds Close in Rolleston in Canterbury was actually open for viewing this weekend.

Confused? - well the issue is that the property listing in question, a nice single level 4 bedroom brick house has an address of 1 Lloyds Close, Rolleston, Selwyn, Canterbury has, through the computational programme at Realestate.co.nz placed the property listing on the world map in Canada not in Canterbury. The Realestate.co.nz system uses Google maps to locate this address with a pin on the Google maps on the website and on the mobile app. However as we all know technology can perform strange acts at times and in this case the Google maps programme decided that 1 Lloyds Close, Rolleston, Selwyn, Canterbury was actually 1 Llloyd Ave, Peterborough in the state of Ontario, Canada!

 

This is somewhat amusing, but actually there is a serious issue here as the agent in their role of providing services to the client is potentially failing that client as the property they are marketing is invisible to anyone standing in Rolleston using the app or in fact a person anywhere using the mapping function of the app - especially when you consider the app has been downloaded over 200,000 times and is being used actively everyday by buyers.

There is a very simple solution to this problem and that is provided by Realestate.co.nz who can go into the their database and overwrite the geo-locational address to place the location pin in the right place and hopefully for the benefit of the owner of this property it will be completed within minutes of reading this article. However the fundamental issue is one of agents 'owing' the online marketing and checking that all of their clients listing's content is accurate online - a very important process often overlooked.

In case you were wondering I found a total of 24 NZ properties on the app today that are in other countries - 1 in Tasmania, 1 in Illinois, 2 in Kentucky, 2 in New York, 3 in Ohio another one in Canada and 13 in the UK!

As a note the Google map on the Ray White website of the property is correct and places the property in Rolleston, but it further reinforces the need for agents to check content on all medium - mobile and web.

Rent vs Buy - a new financial calculator

The decision of whether to rent or to buy is often not purely a financial consideration, it may well be about flexibility and lifestyle or as seems more common at the moment the access to that deposit is limiting the opportunity to purchase.

If the financial consideration is a big driver of the decision then you will be pleased to know there is an excellent online tool published by The New York Times that helps to answer the question "when is it financially better to rent than to buy". To be clear the online tool is primarily built for renters to help better to see the point at which it becomes better to buy than to rent.

The beauty of the app is that there are a wide variety of inputs that dynamically allow the calculation to be personalised and whilst it is a US app it can be just as relevant to the NZ market.

The app requires some inputs to begin with which you are key to the calculation such as real estate fees, mortgage rates. inflation, investment rates, local and personal taxes as well as current inflation in property prices and rents. With all of these inputted then the key factors to examine are how long you plan to stay in the house and what is the price of the type of house you are looking to buy. It is also valuable to then go back and see the impact of property price inflation and rent increases as to how they impact the decision threshold. 

Before you have a go with the app I would recommend you have a watch of this screencast I have published which walks you through the app together with advice around the input levels.

KiwiBank ups the ante with Home Hunter mobile app

The mobile property searching environment has become a little more heated with the launch of a significant campaign promoting KiwiBank's Home Hunter app for iPhone and Android. The app was originally launched late last year but seemed at the time to suffer from data integration issues which have now been fixed and with that has come this recent promotion.

It is by no means the only foray into this space by the main retail banks eager to establish closer relationships with home buyers. ASB launched an app back in 2012 which was based on the data from QV which was a rather weak experience and appeared to 'wither on the vine' - I still have it on my iPhone but its lack of data integration leads to it crashing - it is also not in the app store. It is interesting as an example of how to manage the retirement of an app as of course the actual app lives on even when you delete it from the store and your brand therefore is tarred with the implied experience of it not working!

Westpac have been active in this space but rather than build an app chose to partner with both Realestate.co.nz and Trade Me Property to sponsor those apps. They also in my mind built an excellent service called Home Club which with a data integration with Trade Me Property enables the user to scrapbook properties and receive property insight data from QV.

The Home Hunter app from KiwiBank works well as far as data integration which it receives through a data feed from Realestate.co.nz which provides the most comprehensive portfolio of agent listings. However I struggle to see the value in the app for the general property "hunter", except for one very sweet aspect.


I believe that the team at KiwiBank (I use the term specifically as there is a Facebook page for the team!) have rushed off in their excitement to develop the app, grabbed some "shiny objects" along the way but have not stopped to think about the user and what the user might find useful. Here is my take on the app - the pros and cons.

1. Shiny object #1 - the name 'home hunter' goes along with the functionality of the augmented reality capability that allows you to see property around you overlayed with details of property for sale. There is a small circular 'radar' image that tells you if you are near to property for sale. However the whole experience is a classic case of a technology seeking a solution - you have to ask yourself do you want to walk around holding your phone up in front of you? The better solution is the map based presentation of Realestate.co.nz - better to have people look down at a map of where they are and see what is around them for sale.

(As a friendly note to KiwiBank, there is a terrible unexpected consequence of this feature; if as I did, you give up using this feature from the drop down menu and close the app, when you next start the app again you immediately think something is wrong or broken because all you get is the phone's camera with no context of the app).

2. Shiny object #2 - the sun finder feature is one of those functionalities that you go "interesting to know but not something I need everyday!" - it shows the trajectory of the sun relative to the time of year wherever you are standing. Now maybe I am wrong, but not really that compelling; after all what you need to know is where is north and any Sky satellite dish will tell you that.

3. Sweet Honey - the app will provide you with an estimated price range for every property on the market - now that is compelling and appealing!

However. yes there always has to be a however; you need to get a pre-approval from KiwiBank. Now I would think if I was thinking of buying what harm could there be in being pre-approved? After all the estimated price range for every property you look at that is on the market is compelling and considering the cost of a one-by-one request of QV for this data would be $49.95, the trade off of 10 mins of your time and providing your details to KiwiBank as compared to hundreds of dollars of cost for multiple property e-valuer estimates, is a no brainer - where do I apply? Added to this KiwiBank highlight with a little green tick properties that in principle they would lend against.

4. Dead end - the app despite having all this rich set of listings of property on the market and estimated price range, fails at the core benefit of a tool to find property for sale and to contact the agent. Instead of having the agent details on each listing, the app has to open up the whole listing as a app browser-window from Realestate.co.nz for you to have to scroll down to find the agent contact details within that listing.

5. Disorientation - I have in the past bemoaned the Trade Me Property app as it does not put the map based search front and centre on its app, burying it as a secondary functionality. Almost 100% of real estate mobile apps the world over (inc Realestate.co.nz) launch into a map. It's logical. It's a mobile device with built in GPS. Sadly KiwiBank goes one huge leap backwards and has no map on their app!

 

So in summary, this Home Hunter app has one killer piece of functionality that in my view outweighs a stack of poor user delivered functionality. So if you are serious about buying, get a pre-approval and use the app from your desk at the office or at home, and then when you are out an about to view property use the Realestate.co.nz app.

As an extra piece of insight I thought I would have a look at the level of downloads for this app as compared to the main portal apps. The chart below tracks (via App Annie) the ranking of downloads of the 3 apps over the past 30 days. Clearly the advertising campaign is working for KiwiBank, they are the most downloaded app for property at this time. For Realestate.co.nz it's a steady rate of downloads on top of the more than 200,000 to date, whereas Trade Me Property whilst benefiting from a spike in downloads after the relaunch in April, is struggling a bit in 3rd place.


Housing Crisis / Property Bubble - what does the data tell us?

The term "Housing Crisis" has been the standard text of many news articles in the past week - a quick Google search reveals the extent of the coverage and the political mud-slinging. Now, whether or not there really is a crisis regarding the availability of houses or if we are seeing a bubble in property prices is always a matter best explained and rationalised after the event, never during it. This leads me to ponder the old adage of "What can we learn from examining history?" and equally the wise comment "Past history is not a certain predictor of future trends".

However despite these cautionary words it is useful to examine the history of property data, in the context of which,  history covers in relative terms a fairly short period; for accurate factual data of property selling prices goes only back to 1992. Since that time we have had a monthly median sales price reported by the Real Estate Institute; that's 22 years of data which does at least cover a couple of key cycles, most significant of which in price terms was the period from 2000 to 2009. During this period of 9 years we saw the national median price (measured on the Stratified House Price Index) to more than double from $174,850 to $344,566.

The key questions is whether the current bull market witnessed since 2009 is in anyway a repeat of history? Certainly that slope looks very similar and can be seen to some extent to be accelerating over the past year.

To attempt to answer this question, I have compared on an index basis these two periods and overlaid them on the same chart. For the national picture the chart below tracks these two periods with the 2000 - 2009 period represented by the grey line and the recent 2009 to date represented by the red line.

Into the 5th year of this bull run the national median sales price is up 21%, this compares with a rise of 52% over the earlier property bull run at the start of the last decade. A case of the circumstances looking similar but actually the extent of the rise being nothing like as significant.

However when I thought more about this analysis a question struck me, which is as to whether indexing is appropriate a measure after all a 10% increase on $200,000 is $20,000 whereas a 10% increase on $400,000 is $40,000 and I know which capital appreciation I would prefer to have. So to answer the question, the capital appreciation over the early part of the last decade representing that 52% increase was $91,250 and the most recent rise of 21% represents an appreciation of $77,821. The chart below more ably demonstrates this.

So there appears to be a lot of similarity in capital gain between the current bull run and the last bull run - half way through the cycle if history were to be repeated, it would seem.

However this is where the rich data available can provide a very different view as to forecasting the coming years as to whether future capital appreciation will match the past decade. For although the national picture shows a striking similarity in capital appreciation thus far the components of the key regional markets highlights a very mixed story.

The REINZ Stratified House Price Index only covers the main 3 metro areas and then provides a figure for the North Island (minus Auckland and Wellington) as well as the South Island (minus Christchurch). Here below are these respective analyses of capital appreciation for the period of 2000 to 2009 and 2009 to date across these metro and provincial areas.

 

Auckland

Auckland we all know is cited as the driver of the current NZ property bull market, but would you have imagined for a moment that it is outstripping the performance of the last bull run? In just over 4 years the capital appreciation of the median sales price is $198,355; after the same period at the start of the last decade it was $132,810. There was certainly a hesitant start but that capital appreciation has been rolling along at a fair clip for the past 2 years - those two lines are certainly diverging more and more.


Wellington

It probably come as no surprise to hear that the capital appreciation for the Wellington market is less than Auckland, however the extent to how much lower may surprise. After just over 4 years the capital appreciation of the median sales price in Wellington is $28,582; after the same period at the start of the last decade it was $84,035. You could, looking at the chart even question the security of that accumulated capital appreciation - just 4 months ago to amounted to $65!


Christchurch

The Christchurch market, very much as a result of its own set of unique circumstances has been cited as the partner to the Auckland market in driving the bull run of house sale prices nationally. Well the data certainly bears that out, not quite as extreme as the Auckland market but keeping very much inline with the last bull run. After just over 4 years the capital appreciation of the median sales price in Christchurch is $107,982; after the same period at the start of the last decade it was $92,185.


Other North Island

This set of data comprises what remains of the North Island excluding Wellington and Auckland which is a large part of the North Island property market. It does cover the Waikato region including Hamilton as well as Tauranga, the Hawkes Bay, Taranaki, Northland and Manawatu / Wanganui, a very diverse range of property markets. It will though come as no great surprise to see that these collective markets being more of provincial New Zealand, have not experienced a bull market for the past four and a half years. Over this period the capital appreciation of the median sales price across these provincial North Island centers is $16,820; after the same period at the start of the last decade it was $67,225. There is certainly a lot of similarity between the Wellington market and the rest of the North Island excluding Auckland, further reinforcing the fact that this bull run is very centric to the two major cities.


Other South Island

Excluding Christchurch from the South Island still leaves a reasonable property market with Otago as well as the Nelson / Marlbourgh region, the balance of the vast Canterbury region and of course Central Otago comprising that unique market of Queenstown. This aggregation of provincial South Island has benefited somewhat better in the past four and a half years than their North Island counterparts recording a capital appreciation of the median sales price of $37,426; after the same period at the start of the last decade it was $92,550. Clearly this region enjoyed a strong bull market in the past bull run, this time however the markets seem more subdued.

 

We still know so little about overseas buyers of NZ property

This week we have seen two supposedly insightful pieces of data helping to provide insight to the extent of international buyering of NZ property - one from Labour and the other from National. Irrespective of the validity of the data (I'll come to that in a minute) it clearly shows the fear and/or uncertainty surrounding the extent of international buyers' activity in the NZ property market. Certainly from a political perspective at least.

The first set of data released was from Treasury analysis of IRD data into tax returns filed by rental property owners. The data showed that from amongst 200,000 such tax returns around 12% (24,000) were from non-residents.

This data is certainly robust as there's somewhere around 400,000 privately held rental properties in NZ - allowing for multiple ownership this would cover most of the tax records. However the question has to be asked - what relevance has this data?

Included in this total of 24,000 would certainly be ex-pat kiwis with homes or investment properties here in NZ, and with the overseas ex-pat community somewhere close to a million people by all accounts, this group could account for all of it. Also the data provides no insight into the changes in the make up of this group of the years and thereby any inference of proportion of sales. The only trend analysis (Figure 1) shows that this segment had not actually grown significantly over the past 15 years during which time the NZ resident ownership base grew from 110,000 to 180,000 whilst the non-resident (as well as "unknown" whom the analysts suspect are likely to be non-resident) actually fell from around 28,000 to 24,000. 

The second set of data released by Labour's Housing Spokesman Phil Twyford presented the statement that based on data from a Chinese real estate website New Zealand is the 5th most popular place Chinese buyers look to purchase residential property behind the US, Australia, Canada and the UK.

The website to which the statement refers is SouFun - the biggest property website in the world, whilst not publishing traffic figures to its site, it is a listed company on the NYSE generating EBIDTA of US$360m on revenues of US$640m - this is a significant company operating in a massive real estate market. A market with annual transactions in the multi-millions of properties.

However whilst the audience and presence of the website is enormous in domestic Chinese terms, the capacity of it to attract an audience to NZ listings is tiny - no correct that microscopic.

In total they host probably somewhere over 4 million properties for sale across China together with a tiny add-on of around 35,000 listings from outside China. Within that 35,000 international listings there are 23 NZ listings - yes 23, check them out.

Many real estate websites around the world host international listings. The most significant of which is probably the UK site Rightmove which hosts over 125,000 international listings from more than 65 countries. Rightmove hosts 3,476 NZ listings which would equate to over 8% of all NZ property.

The fact is that the SouFun international section of the site is not representative of the true listing stock of any country it showcases. The closest it comes is actually Australia where it hosts over 6,000 listings - yet that represents less than 3% of the more than 230,000 listings of Australian property on the market today. For NZ there are 42,751 properties for sale at this time across the country and SouFun showcases 23 of them - less than one tenth of one percent.

It is therefore at best misleading and more likely totally irrelevant to showcase this data as any form of indication of true Chinese interest in acquiring NZ properties. 

Having said that there is no doubt we still need to find away to collect and analyse the data of property transactions - something I seem to be constantly championing - is anyone listening?

The facts behind the headline when it comes to property do-up's

I can't blame newspapers / media sites / sub-editors or journalists for eye-catching headlines - they need to attract an audience and sell advertising to that audience, and there is no better headline than the combination of property and greed, or is it simply kiwi can-do attitude!

"Owners make $220,000 in a year"

However this article in today's NZ Herald is at best light on fact and rather heavy on drama.

  • "A plain weatherboard house on Auckland's North Shore sold last week for 94 per cent more than its current valuation" - the fact is it the property sold for $876,000; its 2011 Auckland assessment capital value was $455,000. It's current valuation is either the sale price of $876,000 or the valuation assessment made by a registered valuer. So it did not sell for close to double its current valuation.
     
  • "Owners make $220,000 in a year" - the difference between the sale price in March 2013 and the sale price in May 2014 is $226,000, no allowance seem be allowed for in any costs associated with owning or selling the property. As I will show below the owners made around $70,000.
     
  • "A real estate source said the sale showed there was "no sign of the market slowing up" in Auckland" - a single property sale can never be extrapolated to reflect the property market dynamics of the whole of Auckland.

I could so easily have stopped the article there, but  could not help myself when I saw this article to do some research and see what I can assess is the real story here.

The property concerned is at 13 Benders Avenue, Hillcrest - with the services of Google Maps StreeetView it takes no time these days to verify a property from a street image. The property was sold at Auction just over a year ago on the 7 March 2013 for the price of $650,000 it was marketed by Bayleys. The marketing copy described the property as "An original immaculate example of what was a modern 60's bungalow set on a near-level, full road frontage section of 954sqm"... with the ability to create and add value"

It was very clear from viewing these images  of the property just over a year ago that it was indeed an "original" and in need of renovation - a full portfolio of images is available to view via Open2view here.

Over the course of the past year the owners have carried out a classic do-up to improve the appeal of the property as the 'Before & After' images below demonstrate.

The property has been recently marketed by Barfoot & Thompson and went to auction on the 8th May and sold for $876,000.

In my judgement the owners carried out an appropriate make-over to the property to present it in excellent condition which naturally creates appeal and demand and that was demonstrated by the fact that the auction was brought forward.

However that headline keep nagging at me - did the owners really make $220,000 in a year. So here is my assessment of the facts based on my estimation. 

Screenshot_14_05_14_10_26_am.png

Not $220,000 but overall a healthy return in a year of over $120,000 representing a 94% return on the original investment of the deposit of $130,000.

However I think what we have presented here is what the IRD would judge to be a property purchased with the intention of sale and thereby deemed to be a business. The mitigating factors being the property was only owned for a year, it was significantly renovated over the year and it was clearly staged for sale and therefore unoccupied. 

Assessing this project as a business and with the help of tax advisor and accountant I have developed this more accurate financial assessment:

So legitimately the owners have seen a net profit of just around $70,000 giving a 54% return on the original investment of the $130,000 deposit for just a years worth of work, and the government collected $34,000 of tax on earned income.

The property is now a far more attractive home for its new owner. The local community has benefited from the trades people employed to do the work, local real estate agents have earned their income for their work and the owners are rewarded for their risk in this business decision. 

So who loses? - the new owners were not forced to buy; based on their evaluation of the property market they felt that the property was worth $876,000. Potentially it could be argued that the new owners will have a mortgage that is sourced from overseas funds and this costs the country, otherwise the domestic economy benefited as well as the government.

What can we glean from the April property market data?

The most noticeable component of the monthly summary from the Real Estate Institute for April was how conspicuously it lacked any great hyperbole. The facts were clear - sales volumes continue to fall and the fall was significant in the month, down 22% from March and down 20% year-on-year.

The fact is that sales volumes have been trending down since they peaked in October last year, reaching 80,677 on a moving annual basis. Since then they have fallen 4% to a moving annual total of 77,151 including April.

The April total of 5,670 sales was as the Institute stated the 7th lowest April since the data commenced over 23 years ago. I would go as far as to say that there were extenuating circumstances that partly accounted for the fall in sales. The Institute did reference the coinciding of school holidays and Easter and its effect on working days. I would judge that the key coincidence was the fact that the Easter week ended with Anzac day thereby creating two sequential long weekends and a very short 3 day business week which was a chance for people to escape in the last rays of summer as they did.

The last time this occurred was in 2003 when the impact on sales was equally significant - April 2003 saw a 1% fall year-on-year coming off a sequence of strong months in January / February / March of that year respectively +21% / +11% / +11%. By comparison 2014 saw January year-on-year sales down 4%, February down 8% and March down 10% before the April fall of 20%. Out of interest May 2003 saw a rebound with sales up 25% year-on-year. It could be that we may well see a rebound in May this year.

The fact is real estate agents are in many ways more influential in the marketing of property these days than a decade ago. Action was noticeably focused to getting listings onto the market in early March coupled with the avoidance of auctions and other time-bound campaigns ending around the Easter period. This did in some way help to deliver what was actually quite a strong March. 

In terms of price data the median price fell in April from a record high set in March of $440,000 to $432,250. The more reliable Stratified price edged a small increment higher from it's peak in March of $447,003 to $447,646.

As has been discussed recently there have been questions asked as to the true indication of property prices as represented by these two measures given the artificial inflation of median price as a consequence of the significant decline in sales of low value property. On a year-on-year basis the sub $400,000 price bracket saw sales decline by 32% - far in excess of the 20% decline in total sales in the month.

This factor is clearly impacting the true measure of property prices for just as the composition of sales is changing away from sub $400,000 properties, so it is skewing towards the $1m+ properties which grew by 14% year-on-year thereby exerting a larger influence on the median.

Gradually the impact of the this slow sales of lower price property will be reduced and the median price measure (either in raw form or stratified) will begin to reflect the true selling price of a representative selection of property sales. At that time and I believe the April figures are for the first time beginning to reflect this, we will likely see some easing in property prices, clearly showing that the market peaked in price and sales volumes back at the end of 2013. 

Trade Me Property adds School zones

Whilst Trade Me Property may still be grappling with issues of agent loyalty and patronage, the technical team appear to be focused on what is important - adding richer and more relevant information to the site. 

School zones are a much quoted detail in many property listings as agents recognise the importance (and value) of the 'in-zone' location of properties. Whilst no objective data is available on the added value of an 'in-zone' location for NZ property or any consumer research, I did find some insight from overseas. In the UK a recent report entitled "The Good School Guide" produced in association with the Estate Agency Savills has found that parents are prepared to pay a premium of almost 22% to buy a home close to some of the best state secondary schools in the country.

In the US a recent homebuyer survey from the National Association of Realtors. The survey examined factors influencing neighbourhood choice amongst the various generations. For those aged 34 to 48 years the quality of the school district was the third most important criteria after overall quality of the neighbourhood and the convenience to work.

So with this endorsement of the value of such information it is therefore surprising that it has taken over 5 years for either of the leading real estate websites to incorporate school zone data into the mix. Credit should be given at this time to Barfoot & Thompson who incorporated School Zones into their excellent iPad app last year.

The Ministry of Education has provided an open data platform of school zones for years and provides an interactive map to help the public identify the zones of all schools (those that define a catchment area).

Trade Me has just this week released an upgrade to their website that delivers an excellent integration of not only the the school zone data but all data on schools within the geographical area of the property for sale.

The functionality is within the map section of the site and delivers not just the details of which schools are in zone but also key facts about those schools - size and decile ranking as well as distance from the property. The selection of schools covers Primary, Intermediate and Secondary both state and private schools.

Whilst I think this is a valuable enhancement of functionality to go alongside the other recent enhancement of boundary view I think the user experience could have been better enhanced along these lines.

  • The School information could have been incorporated into the primary facts about the property rather then making them a opt-in option of the map - simply listing the 'in-zone' schools would be a real pus and putting that up front.
  • The schools by type could be ranked by distance from the property in descending order. Also using a colour scheme to differentiate between state schools (showing in/out of zone) separate from private schools.
  • The addition of this valuable data to their iOS apps - especially given the level of usage of the mobile app environment when searching for property and the map-centric aspect of search.
  • Probably the greatest missing component given the data integration is "search by school zone" within the search function so instead of searching for 5 bedroom homes under $800k in Onehunga and then having to look at each one to see which are in-zone for Royal Oak Intermediate you could add this requirement into the search options.

Overall though a great step forward and so good to see a step up in technology innovation from Trade Me Property.

 

How can the median price be rising when property sale prices aren't rising?

This is not a conundrum, it is in my opinion the reality of the situation in today’s market and has lead to these fairly striking statement by some leading economists:

Westpac's Chief Economist Dominick Stephens said “It is impossible to tell what is really going on with house prices

New Zealand Institute of Economic Research (NZIER) principal economist Shamubeel Eaqub said “trying to forecast house prices has been a mug's game

The reason behind these statements is the conflicting data coming out from REINZ and from QV - specifically the March median price data which showed an accelerating rise in price from 8.2% year-on-year growth in February to 9.2% in March set against a fall in sales of 10% and QV reporting that the rate of price increase was easing. In a single month REINZ reported the median price of NZ property had risen from $415,000 to $440,000!

There has even been questions as to the accuracy of the REINZ data. This is not something I believe, or have any insight into, but such comments certainly demonstrate the concern in the market as so much value is attached to the timely and accurate indicators of the property market by so many sectors of the economy.

I have long advocated the use of the REINZ Stratified Median price index as a more accurate methodology for tracking the true indicator of the price of property sales across the country, however even this measure, long trusted for its lack of volatility has of late shown some wild fluctuations. 

Tracking these fluctuations over the past 20 years as the chart below highlights shows that on a 3 month moving average basis the recent decade has shown a normal fluctuation range of around $3,900 from month to month, this was a higher level of volatility when compared to the 90’s when the volatility was less than $1,700 month to month.

In the last 3 months this volatility has spiked with the 3 months average for the 2014 year so far showing a volatility month-to-month exceeding $11,000 - a highly volatile situation.

 

So why is it that we are seeing this volatility?

In my opinion the impact of the LVR restrictions are having a greater impact on the property market than is currently being acknowledged.

Let's look at the facts:

  • Sales of lower priced properties are down - the data is reported by both REINZ and in the Auckland market by Barfoot & Thompson. 
  • Overall property sales have already come off their peak and are easing - 10% down in the year to March.
  • The retail banks have demonstrated an ‘over-correction’ to the Reserve Bank imposed 10% criteria for high LVR lending, resulting in upwards of a 90% fall in the approval of 80+% LVR mortgages.

To better assist in understanding how these indicators might be contributing to the volatility in the median price I have developed a hypothetical scenario of the composition of the property market sales in a month. The by comparing this with a subsequent month where the underlying property prices remain the same year-on-year across all price sectors, where sales volumes remain unchanged across all price sectors, with the exception of the lower priced end of the market and let me show the impact.

Here is a hypothetical normal distribution of property sales in say March 2013 - 5,082 sales with a median price of $400,000 and for reference an average price of $507,000

Now let’s jump forward to March 2014 - let's reduce by 23% the sales volumes in the price ranges $225,000 to $400,000 - just these price ranges. All other sales volumes by price range remain identical to the year earlier.

The outcome of this impact (the hypothetical impact of the LVR restriction) is shown in the chart by the marginal sales reduction in red across those price ranges.

That 23% fall in sales across those lower priced properties segment leads to an overall 10% fall in total sales to 4,567. The median price though went up by 8% to $431,000 and the average price went up by just 4% to $528,000.

This model is designed to demonstrate that what we could be experiencing is two components of the property market working in complete isolation.

The majority of the property market is plodding on unaffected with the no change in year-on-year sales volumes, and not experiencing any price appreciation. Whilst in those sectors directly affected by the LVR restriction the sales volumes have dropped by 23% but equally with no price change amongst those sales. The net effect though is that the signal being sent out to the market through the median sales price is that property prices overall are rising in an inflationary manner.

A classic situation where aggregated statistics belies the true situation.  

In a heated property market do sellers’ price expectations become inflated?

It is a commonly held view that people looking to sell their home and agents that act on their behalf, have a sale price expectation way ahead of the reality of what buyers will actually pay. It is logical. Why would a seller not pitch a price at least a bit above what they would expect to get. Additionally in a heated market one would expect these expectations on the part of sellers to become further inflated to the point of outright greed - Right?

Well it seems that in general across NZ, sellers seem to be demonstrating restraint and setting a price expectation that is actually moving close to the selling price - or seen from the other perspective buyers appear to be paying closer attention to the price expectations of sellers!

Is sanity creeping into the property market?

Here are the facts based on the last 7 years - a period that started as the property bubble peaked in 2007 and has taken us through a property crash and a property resurgence.

Over the past 7 years the median asking price as analysed by all new listing added to Realestate.co.nz has risen from $400,000 in January 2007 to $495,000 in March 2014; whilst the median sales price as reported by REINZ has risen from $327,000 to $440,000 last month.

As would be expected the asking price has remained ahead of the selling price, but that margin has actually decreased over the past 7 years from a premium of around 205 to 25% to nowadays around 15%.

UPDATE: I have at the request of a commenter added this modified chart of the variance of asking price to sales price using 12 month moving average data thereby removing any seasonality.

This trend is very clearly seen when the data of asking price and selling price is tracked on an index basis where the January 2007 data is set at 100. Here the rise in the median sales price can be seen growing faster than asking price over the past 7 years.

Asking price in the last 7 years has risen by 23% as comparing March 2014 with January 2007 whereas sales prices have risen by 35%.

 

Possible Explanations

So why would it be that asking prices has not kept pace with selling prices? - here are couple of explanations that I would put forward:

It's a sellers' market and buyers have to be price-takers if they want a property

The most recent 3 year period at least has seen a very strong sellers' market where inventory levels have been historically low coupled with low finance costs and ready access to lending, this has created the most recent property inflation spike which has set the media alight with expectations of a bubble. Such media coverage tends to invoke the 'herd mentality' which creates an environment where buyers loose negotiation leverage as the power switched to sellers - buyers then have to accept that they need to pay to secure a property they want or fear loosing it.

Agents are taking more care in appraising properties as a consequence of new legislation

The most recent changes to the Real Estate Agents Act came into force in 2009 and one of the requirements of the Act was to require all agents when undertaking an appraisal and before a signed License Agreement is completed, to provide the vendor with a written appraisal document which must include an indication of expected appraisal price for the property. This price is then often used as the listing price for website search range - the 'hidden' price which drives the search engine of the website without a specific price being published. This requirement of the Act is likely to have driven a behaviour amongst agents to be more accurate (and thereby less inflated) in estimating a sale price.

Agents are becoming more conscious of the role of the web and pitching prices to suits searching

In someways as a follow on from the last explanation, the last 7 years has certainly seen a significant change within the real estate industry in the appreciation of the role of the web in property searching and discovery. As this transformation has occurred agents have come to realise the importance of the price ranges and this may well have lead to asking prices entered as search prices being set to optimise the exposure of a property when people are searching. Whilst this alone may not have caused this narrowing of the gap between asking price and sales price, in the early period of the last 7 years the likelihood was that most agents delegated the task to office admins who may have been given a range of price search and taken upon themselves to enter the range of a specific figure.

Reliance on industry automated appraisal systems for that are powered by less timely sales data 

Most agents use one of the automated appraisal tools offered by Terralink with Property Guru or Property IQ offered by Core Logic - both of these are themselves powered by the database of settled sales from the LINZ database. This database is on average at least 3 months older in terms of data than the REINZ sales data which could cause a lag effect therefore depressing the potential price inflation factor evident in the market.

In my view it is likely that all of the above could be contributing to some degree to this trend of a convergence of asking price and selling price. I certainly don't expect them to converge however they are both key indicators of the property market with the measure of asking price being correlated to property sales as I analysed a couple of months ago in relation to the Auckland market.

Barfoot & Thompson - the powerhouse behind the Auckland property market

I admire and respect Barfoot & Thompson for many reasons, but most of all because they take a professional and open approach to data.

On their site they publish facts. They share valuable insight into the property market. You can easily see how many properties they sold in a month, by price range, type and location. They also provide rental data as one of the leading property management companies.

This insight into their business should be celebrated, not so much for what it says about the company, as what it does to help us better understand the property market in Auckland - the powerhouse of the NZ economy and the hotbed of discussion of the property market.

Their ability to share openly their sales performance is a lot to do I suspect, with the family ownership; thereby allowing the directors to make the decisions that they believe are in the best interests of their employees, their self-employed real estate agent contractors and their wider community, as well of course of their business.

The Barfoot & Thompson business is huge. In 2013 they sold around 4 in every 10 properties in Auckland. A total of 13,123 transactions with a total transaction value of $8.5 billion.

2014 has so far been an even better year for them with sales in March exceeding a value of $1 billion in a month - a record very quietly celebrated internally I am sure, a staggering success. In March their total sales of 1,392 properties equated to 19% of all properties sold in NZ and they only operate in Auckland! (& Northland) although their data is based on Auckland.

 

Their success over the past couple of years is a testament to a classic marketing strategy I remember hearing in my early years in marketing. Increase your marketing investment in the downturn period of the economic cycle - just when your competitors are retrenching to save costs and secure shareholder dividends, that is when the smart company invests. As the economy improves as it has done in the past 3 years, then your investment pays off as your brand is well established with strong emotional triggers to ride the economy upwards.

Barfoot & Thompson are experts at emotional triggers being passionate supporters in the community - whether it be sporting, the arts, charities and of course their support of Starship - they wear their heart on their sleeve and back it up with resources to invest back into the community.

Their business model is smart - do what other competitors do, but makes your presence felt. They charge a commission rate just less than the competitors - not so much to be seen as a discounter but enough to provide a point of difference and a sense of being with the community. They invest in their physical presence. They have more offices than any other brand in the region - over 60 offices, so there is a presence on every high street in the region. They invest in people and they support them, offering salaried apprenticeship scheme to get people into the industry. They invest in brand marketing - you don't have to travel far to see a billboard or the back of a bus to get that recall of the brand.

All this investment is paying off, their market share in the Auckland market is growing, topping 46% in March alone to deliver a 12 month average of 42% up from 38% coming out of the recession in 2011. Almost all of this growth undertaken without buying up other franchise operations or building new offices (bar a very few exceptions) very much unlike how their competitors operate.

Barfoot & Thompson also deliver higher metrics than the other franchise groups in the country based on a per office or per agent basis.

They achieve almost twice the rate of sales per office per annum as their main competitors and deliver a higher gross transaction value per agent.

They are also innovative being the only real estate company to release an iPad app in NZ - an app that in my opinion is the best user experience for property viewing of any of the apps on the app store at this time - its only weakness being the range of listings, limited to just their own!

Returning to my opening remarks, the thing I most admire from the company is their publication of data, at a time when we need greater insight into the property market to assist us to make better informed decisions as to the state and trends in the market I am pleased we have such a forward thinking company in our leading city.

Is there really a shortage of properties for sale?

We have been seeing statements in the media for years now, stating how we have a shortage of properties for sale - ever since the property crash in 2008 in fact. However the question I constantly ask (myself as much as anyone) is, if this were a real issue then how come it could continue to be a real issue 6 years later?

I wonder if this issue is as much a function of available data as an intrinsic problem. Prior to 2008 there was no available data on inventory or new listings - the supply side data of the property market. Up until that time the only available data on the property market was transaction data on sales volumes and prices. Then in April 2009 Realestate.co.nz published the first NZ Property Report covering the market in March 2009 looking back 15 months to January 2007. This report provided a whole new set of data particularly centred around new listings and inventory as well as asking price.

The data set of the NZ Property Report covered the period from January 2007 as this was judged the most accurate starting point, due to the fact that the database for the website was truly reflective of the whole market from late 2006 - the inaugural year of the website.

The problem is that without data from say the nineties and early years of this century we have difficulty in accessing what a normal market was, as 2007 was the last of the froth of the property market before the crash and subsequently the market has moved into very different modes over the past 6 years.

I thought I would look at the core data and see what components are valid and what we may be able to shine a light on to see a clear picture of the market to be a true indicator of trends and to answer the question as to whether there is a shortage of property for sale.

 

1. Inventory data

The actual level of available property for sale on the market over the past 6 years has not changed that much.

Screenshot_11_04_14_7_26_am.jpg

It has been as high as 53,000 properties and as low as it is today at 39,000 properties - but then at 39,000 properties that is nearly half of the total current annual sales. Certainly buyer and real estate agents would love to see more properties on the market, but 6 months stock is a pretty good level and in relative terms the availability is pretty consistent.

Inventory on its own does not really help us understand the trends in the market

 

2. Sales and New Listings data

The supply side data of inventory and new listings, takes on a greater relevance when assessed against the rate of sales through the addition of the monthly sales data which provides a greater contextual insight.

This chart whilst a little confusing with dual axis tries to capture the key data sets and align them to provide insight. Inventory as per the previous chart is measured in actual monthly levels in the grey area at the base of the chart. The red and blue lines measure listings and sales respectively - both are reported on a moving annual total basis. This method of reporting removes the seasonality, so much a component of property data.

The take out from this chart is the almost flat level of new listings coming onto the market over the past 2 years - steady at around 130,000 per annum. Whilst at the same time sales have risen over the same period from an annualised total of 55,000 to 80,000. This shows clearly the component of demand in the market. That demand has not driven more listings to come onto the market despite all the communications from within the real estate industry and yet despite this, inventory has not actually fallen that drastically. This indicates more of a 'liquid market' where sales occur more quickly.

These charts which to me provide insight I know are to many confusing and I have been looking for ages for a simpler indicator of the overall sentiment of the market in regard to supply and demand - something that better answers the question as to the pace of the market and whether there is a shortage of supply. I will note here that I hold the view that price is a lagging indicator and as such tracking the market sentiment of supply and demand will provide the key to future trends in price.

I recently saw this chart from the UK property market showing actual inventory (green bars) matched to monthly sales (blue line).

It got me thinking that this measure had relevance tracking the effective rate of sales each month as a proportion of the available stock.

Producing this chart for the NZ market shows somewhat of a different chart. The seasonality of home sales in NZ seems far more pronounced than in the UK and therefore it is harder to determine easily a trend, whereas I would judge that there are key trends easily determined in the UK data - significant rising sales in the past months matched to falling inventory.

So how to present this data in a meaningful and simple way was the challenge, as I sensed the data contains the core insight needed. Especially at this time where I see the property market slowing and a lack of inventory is not the real issue or the driving factor. 

It came to me! - inventory and monthly sales - what we are really looking at is "Property Clearance Rate" - what percentage of the available stock of properties on the market in a month are sold in that month. A quick analysis produced this chart which shows the ratio of sales to inventory.

Again the seasonal volatility makes it hard to see a trend - the dotted line is a trend line overlaid, but as we all know applying a different fundamental equation to the trend line could produce a different picture! 

Then it came to me - take the 12 month moving average monthly sales and apply it as a percentage to the available inventory and I think we have what to me is a very relevant picture of the NZ Property Market.

Now I could be guilty of endlessly seeking data to fit a story, but in my mind this is a visual of the property market that to me makes sense. It uses the current rate of sale (adjusted to remove the seasonal fluctuations and short term movements), combined with the available stock which is itself the function of existing unsold inventory, new listings and sales.

The telling image from this chart is the sharp rise in the clearance rate once the property market got into gear around 2011 - that rise, from 9% to 19% speaks to the dynamic market we have seen over this past two and a half years. However what this chart graphically shows which I have sensed is that the market has turned. It turned even before we saw the LVR restriction introduced in October as this chart shows the turning point in August / September of last year and the latest data from REINZ on sales in March only reinforces this fact. 

So in my opinion given this declining clearance rate is the key trend and talk of a shortage of properties for sale is nothing but a red herring!

 

 

 

Choosing the right Property app for the iPad - a review of the NZ options

Digital background iPad shutterstock_174836606.jpg

It’s just 4 years since the iPad first entered our lives and despite the view of some commentators, that sales might only top a couple of million, the product has become a legend and total sales to date far exceed 100 million and are likely to continue to accelerate in the coming years.

The device fulfils a role that is far removed from the functionality of the smartphone device or the classic desk-bound computing device. The device is tactile and is as likely to be found on the couch or kitchen bench, as on an office desk. For this reason, the iPad (and the other Android based tablet devices) is in many ways the battle ground for property apps, as property searching is largely a ‘lean-back’ experience undertaken in times of rest when you want to immerse yourself into a world of escapism with dreams of a new home.

For these reasons I would contend that the best property iPad app almost bears no relation to the iPhone or smartphone app. They provide platforms for very different use cases. The smartphone is all about proximity based discovery and routing to viewings as well as alerts to new listing - functional activities requiring key information, easily and quickly accessible. The iPad is all about browsing in a mode that the traditional laptop or desktop could never deliver to the needs of the buyer or renter. The experience needs to be more of a magazine experience - rich in imagery and immersive in context. The iPad is an intimate device that is held close and in effect caressed and so the experience of an app needs to bear that in mind.

For New Zealanders however I have to sound a note of cautions for the options here are limited and to be honest none of the 3 I have reviewed really deliver to the experience of some of the best in the world and for me some of the best are found in the highly competitive US market with the app from Redfin being a great example.

So let me share my thoughts on the 3 options for New Zealanders, from Trade Me Property, Realestate.co.nz and uniquely a real estate company app from Barfoot & Thompson. I propose to deliver this review in the similar manner as a car review, scoring points based on key categories. These categories are ease of use, content, search and overall user experience.

Just for clarity this review is based on these versions of the various apps:

Trade Me V2.0.13 March 27, 2014

Realestate.co.nz V2.0.2 April 1, 2014

Barfoot & Thompson V1.5 April 2, 2014


Ease of Use

In overall terms, all of these apps are easy to use and fairly intuitive. However to start with extra marks go to B&T for the new overlay intro tutorial which in a couple of screens gives you a great overview of the functions so nothing is left to chance. 

Both B&T & Realestate.co.nz choose to begin the user experience with a map defaulted to your location devoid of any filters. In my view this is the best landing screen for a property app on the iPad. Realestate.co.nz does things slightly better in having a right hand column of listings from the area ranked by latest listed date - a missed opportunity would be the contextual reference numbering which could show the location of these properties on the map.

Trade Me on the other hand defaults to a list view of properties ranked by latest listing but based on the whole database of NZ making the initial experience woefully irrelevant as context is everything! To get to the same experience of a local map as the other two apps takes 3 more taps - a tap too far!

When selecting a listing from the map to view details, B&T chooses to take you to the listing and ignore the location context of the map, whereas the other two provide a hybrid screen of map and listing details. Here there is a vast difference between Trade Me Property & Realestate.co.nz in terms of the amount of screen space given to the listing vs the map. Way too much focus on the map by Realestate.co.nz diminishes the viewing of a listing.

When in this mode it takes just a single tap on a listing pin on the Trade Me Property app to shuffle to another listing - very intuitive. Realestate.co.nz makes you work hard with a required 2 taps to get to a new listings.

None of the apps provide what I judge to be a logical interactive functionality - that being a map with a list of properties whereby the selection of a property on the list highlights (by changing the colour of the map marker) where it is on the map and visa versa - here's this in action on the Redfin app - not a perfect execution but valuable functionality.

The B&T app provides one form of functionality that the other two don't and I love it. It is a flipboard style image viewer which lends itself to the casual, elegant flipping through properties in a magazine style - great execution and a powerful point of difference.



Content - Listings

Untitled_2-9.png

Listings are what powers these apps and each have the same core data regarding their portfolio of listings. Clearly in richness of content the B&T app can only showcase their own listings thereby pushing them down the rankings however because they originate the content of the listings they show they are able (or have chosen to develop) functionality that is richer; I speak specifically of videos and floor plans.

Trade Me has the most comprehensive portfolio of listing, especially considering the dominance in rental listings the site enjoys as a function of the private landlord market. Talking of rentals, a point of note is the fact that the B&T app does not feature rentals, only property for sale.

The most important component of all listings are the photos, this is key whether you are viewing on a handheld device or a laptop, but to fulfil the desire of a lean-back browsing based couch device the iPad has to have stunning images. The raw data of image files for each app is identical (although B&T has the advantage of the original raw image files) but sadly Realestate.co.nz lets itself down by what looks like the use of compressed image files designed to be viewed on an iPhone. The sequence of images and 'blow-ups" below graphically illustrates this.

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Content - Complementary data

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I added this category to make a point. That point is School Zones which is the differentiator between the B&T app and the others. Neither Trade Me Property nor Realestate.co.nz offers any complementary data other than listings. But that is what we want! - I hear you cry!

Well there in theory could be so much data that could be of value:

  • Crime stats
  • Flood zones
  • Postcode
  • Sun angles
  • Walk score
  • Transport routes
  • Parking zones
  • High Speed Fibre coverage
  • Flight path routes
  • Rateable value
  • Property valuation estimate
  • Council Zoning

Many of these sets of data are simply not available in NZ or only at prohibitive cost. However the point is valid and I think important. School zones are public data and easily incorporated into an app and yet the two leading players choose to ignore the details. Good on Barfoot's for showing the way.

However B&T don't stop there they also have a tab in the listing view that includes the StreetView from Google - beautifully integrated into the full screen view - beautifully executed!


Search

The Realestate.co.nz app is the only one of the 3 to use aggregation of listing 'pins' which on the zoom out function reverts to a number to show the total of listings in an area. Trade Me uses red pins which cluster on zoom out until they disappear with a notice instructing you to zoom in - not a very friendly experience. B&T adopt a kind of mid solution - red pins which don't cluster but when you click on them on zoom out show a number of listings for the local area.

Only Realestateco.nz uses differentiation in the pin design to highlight 'New' listings, in my view a valuable feature it is the only app allowing you to also filter the search by 'days-on-the-market'. Both B&T and Realestate.co.nz do display 'Open Home' flags on listings with B&T offering an ability to filter the parameter of open homes by 'any time / this week / today / open in next hour' which I find really useful.

In terms of search filter the Realestate.co.nz and Trade Me apps rely on the iOS format scroll wheel for price and tick boxes for other criteria. As noted in the review of the Realestate.co.nz iPhone app the somewhat restricted search ranges especially on price and on bedrooms as compared to the website is surprising. B&T adopt sliders for price, bedrooms and bathrooms, something I find difficult from a user functionality perspective as the finger tends to obscure the slider and there are no visual cues to the gradations on the slider.

A key part of search on any device is the context of location presented by maps - real estate is always conditional on location and therefore despite the fact that the use of the iPad app may be on the couch the map view is important. Here the 3 apps differ, with in my view Realestate.co.nz taking top honours by using the Google map application layer whereas both B&T and Trade Me Property have defaulted to the Apple Maps layer. This is so evident as a drawback when viewing in Satellite mode - the resolution on the Apple Maps layer is so inferior to the Google Maps layer. These images below show the highest zoom in you can achieve in each app before losing resolution - a vast and significant difference.


Overall User Experience

Getting to use these apps begins to show their respective strengths and weaknesses. In reference to my earlier comments, in my view Realestate.co.nz is the weakest, as simply this iPad app is the iPhone app adjusted to fit the format of the iPad, and sadly as noted earlier the issues with screen resolution makes it the least likely app for 'lean-back' browsing. Too often the majority of the screen is taken up with the map view which does not interact with the property or list view in an intuitive manner. It does have the value of the higher resolution satellite imagery but this is not enough to make for the shortfalls.

Trade Me Property delivers a better solution, however given the resources and capability from a company of their size and knowing how critical the property sector is to the overall performance and long term value of this publicly listed company, I would have to say the app delivers at the lower end of expectations. Too much focus remains driven on the user experience of the web and too little time seems to have been spent on experiencing other property apps and other magazine apps in general as a benchmarking exercise.

The winner by a wide margin in my view is the Barfoot & Thompson app. A well executed iPad app that has been thought through and tested to deliver an experience that I would enjoy using - a credit to the marketing and tech team there.

The saddest conclusion though is that the best app is at best a great platform which will be so seldom used as fundamentally who will ever use it? - it showcases just Barfoot & Thompson listings - sure that is close on 4 out of every 10 listings in Auckland, but what use is that?

Given the clear advantage that the app delivers if I was in the role at Barfoot & Thompson I would make a smart decision. I would as a 22.22% shareholder in Realestate.co.nz* license the app to Realestate.co.nz and thereby benefit doubly - prove the credibility of the technical and marketing prowess of the team and at the same time earn a license fee whilst at the same time deliver to Realestate.co.nz as a championing industry owned website to challenge Trade Me a superior app to the current one - food for though!

Note * Realestate.co.nz is a joint venture between The Real Estate Institute of NZ (REINZ) (50%) and Property Page (NZ) Ltd (50%). Property Page (NZ) Ltd is owned by Harcourts Group Ltd (22.22%), Ray White (Real Estate) Ltd (22.22%), LJ Hooker New Zealand Ltd (22.22%), Barfoot & Thompson Ltd (22.22%) and Bayley Corporation Ltd (11.11%)

 

 

Trade Me Property vs. Realestate.co.nz - the debate continues

My recent article on the state of the online property space here in NZ has raised some interest in the media - clearly the issue is topical, but more importantly there is much at stake. The potential value at play here is anywhere between $100m and $1,400m per annum. The former amount being the total expenditure by the real estate industry on marketing; the latter being the total value of the commission based services charged by the real estate industry upon its clients - the sellers of residential property. Clearly Trade Me is not intending to disrupt the whole industry but equally the real estate industry feels threatened and so their value is under threat!

For Trade Me the goal of the lion’s share of the $100m a year in property marketing is critical. The most recent estimate would put their annual revenue from real estate (licensed agents, excluding private sales) at $15m, this would more than double if not triple if they can secure their new pricing structure. Trade Me is a listed public company and its ambition and its shareholder expectation is to dynamic growth and from that a healthy cash-flow based on an earnings-to-sales rations of over 75%. To achieve this, as they have said, requires a growth in its best performing sector - classifides of which property is the key.

For Realestate.co.nz its goal is to block the Trade Me ambition and in so doing wrestle control of the digital advertising platform from Trade Me so as to provide its shareholders (The Real Estate Institute of NZ (REINZ) and the 5 largest real estate companies) with a cost effective marketing solution; whilst at the same time transition advertising from print to online.

I very much appreciated the very detailed response to my recent article from Jimmy McGee, the Head of Commercial at Trade Me, who has been holding the reins of Trade Me Property awaiting the start of Nigel Jeffries who steps into the role as Head of Property shortly.

His response can be read in full in the comments to the last article. I have chosen to dissect the complete response and in so doing respond specifically to all of his comments, somewhat in the form of a Q&A.

 

Trade Me Property

1. We think things will settle down over time and Trade Me Property will remain an obvious marketing option for agents & vendors. Why:

  • because it is the #1 source of buyers
  • because it has a huge audience
  • because it is great value at less than $200
  • because of our private listings that buyers won’t find on industry websites

 

Properazzi

I would concur Trade Me will remain an obvious marketing option for agents and vendors. More people, more of the time use the web to search and research real estate. In many countries property websites are in the top 5 of all trafficked sites (UK & Australia) Trade Me is certainly a Top 10 website in NZ so it is logical all agents would see it as a valid option.

Anecdotal evidence from agents - in fact almost universal evidence from agents over the past few years from my experience is that Trade Me Property delivers far more buyer leads than any other medium (not just than any other website).

Trade Me audience is huge and brand awareness massive - no question

At a base cost of $159 +GST as recharged by an agent, the cost of a listing on Trade Me is stunning value for money. Nothing comes close - especially not print media with single page insertions costing thousands

The value of the private listings as a unique added content on Trade Me is huge. Up until recently with both Realestate.co.nz and Trade Me Property having the same level of agent listings the advantage to Trade Me has been key - the consumer will always seek out the richest content

 

Trade Me Property

2. Trade Me Property is a compelling marketing option for agents and vendors. It provides listings with huge exposure to a massive audience of passive & active buyers. We know around half of property buyers found their home on Trade Me Property – and realestate.co.nz was well behind with 2%. (These statistics are from a Perspective Research survey)

 

Properazzi

This statistic is not shared lightly and is massive. Trade Me is a publicly listed company and as such has to be carefully and prudent when making any claim - to claim then that a competitor achieves a level of just 2% of all property buyers (in a survey) as compared to Trade Me Property at around 50% is not done rashly or without careful consideration.



Trade Me Property

3. We’re not resting on our laurels. We understand we need to keep working hard to demonstrate the value and effectiveness of Trade Me Property as a marketing option for agents and their vendors – it’s not something we take for granted. As we’ve always said: “You should only use TMP if it helps you sell houses.” We’ve recently released aerial boundary images, will show school zones soon also. Plus well have map-based search for desktop out in a month or so. And last but not least, we’ve got some exciting stuff in store for our mobile products.


Properazzi

Now this is where I think that Trade Me Property has been deficient for a considerable amount of time. They have not been a significant innovator. Even today the user experience of Trade Me is of a single unified platform built around auctioning household items which leaves the properties section woefully underserved as compared to other property portals overseas. I would have to say Realestate.co.nz has not been that innovative, however their latest version of their iOS app is a good step forward, despite the stumble!

Trade Me Property has been weak in delivering a credible mobile experience - certainly as they cite later in their response, many people may well use the general Trade Me mobile app for property searching but it is not a step forward in property  searching merely a mobile version of the web search.

 

 

Trade Me Property

Trade_Me_Property_on_the_App_Store_on_iTunes.png

4. There’s a sense of back to the future: we’ve been here before. TMP was started from scratch back in 2005 at a time when the RE industry had their own website with thousands of listings on it. There are important philosophical differences between TMP and industry sites including::

  • TMP is designed to empower consumers and puts private listings and agent listings on a level playing field.
  • TMP is independent, not industry-centric, and aims to provide buyers with as much transparent information as possible.
  • We believe that over the long-term, loyalty from buyers and sellers will come via TMP being an effective and good value marketing option, and providing users with the best experience. 

 

Properazzi

I would agree there is a sense of Back to the Future here. Back in 2008/9 there was a stand-off by the industry resisting the desire to have their listings on Trade Me. In 2006 only around 30% of licensed listings were on Trade Me. By 2008 that had risen to 65%, but some of the major groups held out, most notable Harcourts. By 2009 all groups were on Trade Me Property, not for the reason of negotiated buying rates, but simply because vendors demanded agents put their property on the site, these agents demanded that the business owners agree to list on Trade Me. Today we have the opposite effect of business owners telling agents to tell vendors that they don’t want to be on Trade Me - because they don’t want to pay $159 + GST to market their clients property!

I would agree Trade Me has always been about empowering consumers. However it has also always been about creating value and enhanced shareholder wealth.

Trade Me is independent as much as Fletcher Building is independent or any other publicly listed company is. It's a publicly listed company with shareholders and a board of directors representing those shareholders who hold the executive team to account to enhance the value of the company. It's there to make money - Trade Me is not a charity.

I think the comment “not industry-centric” may have been a mistake, for a property portal to be successful, it has to be customer centric where the customer in this case is the agent. Not the consumer, and thereby the business has to be 'industry-centric'. I think in someways this is at its core, one of the issues that has caused the problems in Trade Me Property this year.

 

 

Trade Me Property

It’s fair to say we’ve got some concerns about the flyer and the overall impression it creates that the industry-owned site has both more house listings and more traffic than other websites. We think this is off the mark.

Total listings:

The nationwide picture is distorted by the actions of some agents who withdrew listings in Hawkes Bay & Hamilton. TMP still has more residential for sale listings in a bunch of areas, including Auckland, Wellington & Canterbury.

This analysis includes lifestyle listings, where we have 1,000 fewer listings than RE. We’ve probably lost a bit of ground there to the way we’ve treated lifestyle listings, rather than agent backlash. We currently exclude lifestyle from residential search, which we’re looking to change soon. We expect this will make it a far more compelling proposition for agents and vendors of lifestyle properties.

 

Properazzi

Whilst Trade Me might have concerns over the flyer, my analysis shows the statements made have validity. At this time Realestate.co.nz does have more listings. 

I have gone back to examine the listings data as at the 6th April utilising the same methodology to compare each category of listing on both sites across the main metro centres.

Auckland sees Trade Me Property with 6% more listings overall, however when stripping out an estimation of privately listed properties to examine side-by-side licensed real estate listings Realestate.co.nz has 479 more listings - an advantage of 5%.

Untitled_2-11.jpg

In Wellington the two websites classify the region geographically using differing boundaries, for the sake of comparison I have excluded from the Trade Me Property listing the districts of Carterton, Masterton and South Wairarapa which are not included in the Realestate boundary of Wellington, thereby as best as can be evaluated the listings data is like-for-like.

Wellington sees Trade Me Property with just 1% more listings overall, however when stripping out an estimation of privately listed properties to examine side-by-side licensed real estate listings Realestate.co.nz has 346 more listings - an advantage of 12%.

Canterbury sees Trade Me Property with 11% more listings overall, however when stripping out an estimation of privately listed properties to examine side-by-side licensed real estate listings realestate.co.nz has just 92 more listings - an advantage of 3%.

So it is fair to say that in the major metro regions of NZ Trade Me Property have more listings, however from a consumer standpoint to be able to examine the true comprehensive picture of all property advertised for sale you would need to use both websites.

As the analysis includes Lifestyle properties the comments about the display structure of these listings on the Trade Me Property site is more an internal issue for the company and its design team.

 

 

Trade Me Property

Audience: Trade Me Property’s audience (average daily unique browsers during March 2014) as independently measured by Nielsen, is more than 3x the audience of any other property website in NZ. Looking at data from the past 7 months, Trade Me Property’s monthly audience has included an additional 76,000 and 92,000 more browsers each month than any other competitor site. According to Nielsen, 77% of visitors to TMP didn’t visit RE (Feb ’14, NetRatings, total traffic).

 

Properazzi

I am grateful for the exact Nielsen data provided in the response. I have mapped the data and added it to the chart Trade Me Property also presents on its agent home page which shows data from April 2012 to March 2013. As can be seen the differential between Trade Me Property and realestate.co.nz is significant. Trade Me Property has 3 times the average daily traffic but a year ago the differential was 5 times and 2 years ago the differential was 6 times. In March realestate.co.nz average daily visitors were up 95% as compared to a year ago - Trade Me Property average daily visitors up just 8%.

 

Trade Me Property

Hawke’s Bay listing numbers:

Some agents are disregarding their vendors’ best interests.

Agents in some parts of the country are taking advantage of their role as a trusted advisor and using vendors as pawns in a real estate industry power play.

Not having listings on Trade Me Property means less people will see the house for sale which means the vendor is less likely to sell, or get the best price.

We don’t believe these realtors have their clients’ best interests in mind as their clients’ properties are not being seen on the country’s best property marketing channel.

We think agents should do what is best for their vendor, and that would generally include using Trade Me Property as a way to get properties in front of the largest audience and helping them sell more property.

 

Properazzi

I believe some of these comments are valid. Given the significantly larger audience to Trade Me Property and the data on those who visit Trade Me Property and not Realestate.co.nz then an agent not advertising a clients property on Trade Me Property is disregarding their clients best interest. Further this action of refusing to advertise or telling clients that they don’t recommend Trade Me Property is using clients as pawns in a power play that is out of all proportion - a fee of $159 + GST is the cheapest form of advertising. It's time the agents woke up to demonstrating their role and either pay it out of their commission or re-charge it.

Stating that not advertising on Trade Me Property means less people will see the house for sale which means the vendor is less likely to sell, or get the best price, is a serious stretch. This can never be proved and as I have written recently property sales never have a ‘control’ environment.

 

Trade Me Property 

We understand why you’ve compared the iPhone app for TMP and RE, but it’s only part of the picture. This is because as well as the TMP app, heaps of New Zealanders use the TM app to browse for property on their iPhones. Nielsen’s research has also found that more people downloaded or used the Trade Me app to search for property than the Realestate.co.nz app.

 

Properazzi

Whilst the fact that ‘heaps’ of New Zealanders may well use the standard Trade Me app to browse property on an iPhone, that experience is not comparable to the inherent value of a mobile app for property which is what both the Trade Me Property app and Realestate.co.nz app deliver - the battle grown is now, and in the future the mobile space / app environment. If Trade Me Property want to win this battle they need to avoid relying on users engaging with Property on their main app. My advice would be to exclude property listings on the main app and create a mindset change that will get those users to download the property app.

Realestate.co.nz making serious moves on Trade Me Property

There has not been much commentary for well over a month on the tension between Trade Me Property and the real estate industry - up in arms over the new pricing structure. That was until this marketing flyer hit the digital wires today. Proclaiming that traffic and activity on the industry owned website of Realestate.co.nz has "gone through the roof".

These are some significant stats and naturally I am always keen to look into the numbers, where I can, to provide what I see as valuable insight.

 

1. More homes for sale than anyone else

Based on my own analysis as of today (2nd April) this is most definitely true. Not just more, but significantly more!

For the past 3 years at least Trade Me Property has had a subscriber base at least equal to Realestate.co.nz or close enough to make little difference and so from the perspective of licensed agents the two sites have been line-ball. On top of this Trade Me has an additional stock of listings from private sellers which on average have amounted to around  16% of the Trade Me listings which generally means Trade Me has around 18% to 19% more listings than Realestate.co.nz.

As of today that advantage to Trade Me has disappeared and Realestate.co.nz not only has more listings (a margin of 4%) but by applying an estimation factor for private listing, Realestate.co.nz has considerably more licensed agent listings (a margin of 18%).

In seeing this significant advantage to Realestate.co.nz I was naturally drawn to look at the hot-spot of the Hawkes Bay where the boycott against Trade Me continues and has seen a large proportion of agents listings only appearing on Realestate.co.nz. The actual make up of listings on both sites as of today in the Hawkes Bay are as follows.

This is staggering. In the Hawkes Bay Trade Me Property is only displaying 428 houses being marketed by real estate agents for sale as compared to 1,103 houses on Realestate.co.nz - I know where I would be looking for property for sale for sure in this area of the country!

 

2. More Traffic

The marketing flyer speaks to a lift of 30% in traffic over the past 6 months quoting Nielsen average daily unique browsers, certainly a very credible source of data. Not having access to Nielsen data I turned to a source I use quite a bit these days Similar Web. This service provides estimates of website traffic, by no means as accurate as Nielsen of Google Analytics but useful as far as seeing trends.

The trend since the start of the year has been of a significant growth backing up the more credible Nielsen stats.


No. 1 Property App

The Realestate.co.nz iPhone app was the first mobile property app in NZ, leading Trade Me Property by 18 months. Since that launch in late 2010 the app has been downloaded more than 200,000 times and rightfully can claim the mantle of the No. 1 property app in NZ.

The marketing flyer speaks to the download rank as the demonstration of leadership quoting "iTunes & app annie download rank of property apps in NZ". The source of this ranking data is App Annie which tracks the ranking of all iOS and Android apps. For the sake of relevance I have only examined the iPhone app download ranking as Trade Me Property does not have an Android app and the Realestate.co.nz iPad app has only just been launched.

The charts below show the past 12 months for the Trade Me Property iPhone app and the Realestate.co.nz iPhone app.

The Realestate.co.nz app is being downloaded at rate which consistently places it at around the 320th most popular app in NZ, whereas Trade Me Property app is further down the rankings at an average of 500th place.

These collective stats do provide (not that I was sceptical) a very clear demonstration that the battle for supremacy in the property portal space in NZ is actually not that clear cut and certainly in the past 4 months things have begin to change. I am not saying that Trade Me is wounded, but at the same time their is a clear demonstration that Realestate.co.nz is gaining. They do however need to make sure they attend to the detail, like for instance their version 2.0 of their iPhone app which was poorly tested before bugs were discovered which could have seriously undermined their credibility in that key space.

 

NZ's aspiration for new McMansions wanes

At one time we seemed as a country to be building what the American's describe as McMansions - houses that take on the girth so much a part of modern society. Certainly through the early years of the 1990's we saw average size of new houses built rise from 125 m2 to 170 m2, but of late the average size has been waning.

Screenshot_3_04_14_7_23_am.png

In fact in the last decade based on building consent data we appear to be revising our ambitions or at least realising the impact of greater urban intensification we have hardly seen the average size of new homes change. For a time the average new home did break through 200 m2 but that did not last long.

Now compare this trend with the comparable data from the US over the same 15 year period.

In that time the average US new built home has grown from 204 m2 to the latest data showing that new houses have grown in girth to over 250 m2. A lot of this growth has occurred in the past 5 years - a time when US house building has been in the doldrums after the GFC - that might well identify as the article from which this data was collected identified that "Americans Are Increasingly Buying Bigger, More Expensive Houses".