Houses More Profitable Than Units!

CoreLogic's Pain and Gain report for the September quarter revealed that 88.1% of property sales made a profit; an increase of 1.8% on the June quarter report.

Hobart had the highest rate of profit-making re-sales of all capital cities over the September quarter, according to the most recent data from CoreLogic. In contrast, Melbourne was the only city that saw a decline in the rate of profit-making sales over the same period.

Yet regional Victoria was the most profitable ‘rest of state’ region, with 97.5% of dwellings sold for a profit in the three months to September, with the regions seeing the rate of profit-making sales increase faster than capital cities.

Non-profitable sales did not grow in percentage, but their overall value deepened by $319 million to pass $1.2 billion, with investors more likely to sell for a loss than owner-occupiers.

Further key points from the September quarter Pain and Gain report include:

• The Sunshine Coast hit a record high rate of profit-making sales in the September quarter at 96.4%
• Profitability across both houses and units rose across Australia
• Houses are still more profitable than units, but the gap is narrowing, moving from 11.2% to 10%
• A higher portion (17.1%) of property investors sold their dwelling at a loss during the September quarter compared with owner occupiers (10.4%)
• For profit-making sales, the median hold period was nine years, and for loss making sales it was 6.7 years
• Hobart has now held the highest rate of profit-making sales since March 2018

Eliza Owen, CoreLogic’s Head of Research Australia, says coastal regional markets were also very profitable for sellers.
'Profit-making sales represent over 95% of resales across six major coastal markets: Geelong, Illawarra, the Mid North Coast, the Newcastle Lake Macquarie region, the Richmond Tweed region and the Sunshine Coast.

'The combined regional Australian market saw the rate of profit-making sales increase 150 basis points, to 89.2% in the September quarter, while the rate of profitability across capital city markets expanded 30 basis points, to 87.2%.'

Investors vs Owner Occupiers

Ms Owen says despite the higher rate of loss observed in investor sales in the quarter, the rate of properties re-sold at a loss was down from 18% in the June quarter, while the rate of loss-making sales among owner occupiers was down from 11.1%.

'CoreLogic home value indices show dwelling values across Hobart have seen annualised growth of 7.9% for the five years to December 2020 – the highest annualised growth rate of the capital city markets'.

Houses vs Units

There was generally a higher rate of return for houses ($225,000) than units ($125,000), but unit profitability rose faster than that of houses.

Even though the rate of loss-making sales declined faster across the unit segment, units were still about two times more likely to sell for a loss than houses in the September quarter.

The portion of properties sold at a loss among houses fell from 10.2% in the three months to June to 9.6%, while the portion of loss-making unit sales fell from 21.4% to 19.6%. With record low mortgage rates, a faster than expected economic recovery and relatively low cases of COVID-19, profitability is tipped to trend upwards over the coming quarters.