Geography sways buying habits

There has been a great deal of attention paid lately to who or what is driving up property prices, especially in Auckland.

While few people know whether purchasers are new to New Zealand or not, our buyer classification analysis does tell us something about every buyer. We can see if they were a first home buyer, someone moving house, or a multiple property owner, and can then compare how much they pay.

To do this we have calculated the average difference between the sales prices and the capital values (CVs) for each buyer group. Doing this rather than comparing actual prices gets around the potential bias of different buyers being active at different ends of the market.

While there are plenty of examples of individual CVs being too high or low, these come out in the wash when comparing averages between large groups, so our method is a valid way to look for trends and differences. We also clean the data to remove obvious errors.

For sales so far this year, first home buyers in Auckland have paid just over 17 per cent above CV. People moving house have paid just over 15 per cent above CV. Property investors are paying somewhere between, with smaller scale investors paying slightly more than big time investors.

First home buyers in Auckland are therefore paying more than other buyers. That could be inexperience with the sales process, especially auctions, or it could be more emotionally based decision making. There are first home buyers who have missed out on many properties and are increasingly anxious to buy a home, and will pay that bit more to secure it. Investors typically have a dollar figure in mind and are more likely to back out when bidding gets too hot.

Patterns are similar in other main centres, but the gaps between groups are smaller. First home buyers in Tauranga and Hamilton are paying only 0.5 per cent more than movers, and in Wellington the gap is only 0.2 per cent. Investors in these cities typically pay lower again, especially experienced investors who are paying up to 3.5 per cent less than first timers.

Interestingly, a year ago, first home buyers in Auckland were paying over 5 per cent more than all other buyers, and investors were paying the least.

That the gap between investors and first home buyers has closed this year is perhaps evidence that investors are seeing significant future capital gains as a compelling investment strategy.