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Australian property market sees a surge in profitability

Even though transaction volumes increased at the end of 2023, the level of loss-making sales dropped to just 5500, according to the latest figures.

CoreLogic’s Pain & Gain report for the December quarter analysed about 90,000 sales and showed 94 per cent recorded a nominal gain.

The median gross profit also rose to $310,000 .

CoreLogic Head of Research Eliza Owen said the upward trajectory aligned with the sustained growth in home values observed throughout the year.

Loss-making resales dropped to 6 per cent of resales in the three months to December, to a median of $40,000, while the volume of loss-making sales also fell by 5.1 per cent on the previous quarter.

The total nominal profit from resales in the December quarter reached $29.9 billion, up from $28.7 billion in the previous quarter.

“The improvement in the key metrics of this report really highlight the improving profitability in the housing market since the recovery trend began in early 2023,” Ms Owen said.

“We’ve observed a decline in the number of loss-making sales, which fell to just 5,500 during the December quarter, even as overall transaction volumes increased.

“The broad-based increase in profitability and value across the Australian housing market helps to shore up financial stability at a time of stark increases in mortgage costs for some households.”

The report revealed a slight easing in short-term, loss-making resale conditions. 

The portion of resales within a two-year hold period reduced from 7.9 per cent in the September quarter to 7.5 per cent. 

However, there was an uptick of resales with a hold period of between two and four years, from 13.3 per cent in the September quarter to 14 per cent.

“This change reflects homes that were bought in 2020 and 2021, and it turned out to be the most popular timeframe for reselling properties in the quarter. 

“While some of these sales might have been influenced by a rise in mortgage rates, it’s interesting to note that only 3.7 per cent of homes sold during this timeframe ended up making a nominal loss,” Ms Owen said.

Source: CoreLogic

Regional market performance

Regional markets outperformed capital cities in terms of profitability, with 95.5 per cent of resales in regional Australia making a nominal gain, compared to 93.2 per cent in the combined capitals. 

The increase in profitability was also more rapid across regional markets, indicating a strengthening trend outside major urban centres.

“Due to the lingering value add of the COVID-boom, regional markets are looking more profitable than capital cities,” Ms Owen said.

“Regional markets typically have lower property prices and a different lifestyle appeal, and are outperforming capital cities in terms of profitability potentially due to sustained demand, limited housing supply, and a more favourable cost of living environment.”

Most profitable markets

Adelaide remained the most profitable capital city market for the fifth consecutive quarter, with more than 98 per cent of resales making a nominal gain in the three months to December. 

The Perth market also witnessed significant improvement in line with its high growth in home values, with the rate of loss-making sales reducing to 8.4 per cent, marking its most profitable period since July 2015.

Houses and units

Houses continued to deliver higher rates of profit-making sales compared to units, with 97per cent of house resales making a nominal gain, compared to 88.2 per cent of units.

Ms Owen said the gap in profitability between houses and units narrowed slightly, indicating a potential shift in market dynamics including affordability along with supply constraints.

“Underlying land value, scarcity factor and desire for more space through the pandemic has led to a substantially larger rise in house values relative to unit values over the past four years,” she said.

“The relatively large premium on house values has put them out of reach for many, particularly first home buyers and lower-income households. 

“As units become increasingly attractive to buyers, the price gap between detached housing and medium to high density options will close and profitability of units will improve.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.