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Loss-making resales have started to rise as property downturn continues

The Australian property market has peaked and turned downwards, with the number of loss-making transactions starting to rise.

The latest CoreLogic Pan & Gain report analysed about 102,000 property resales in the June 2022 quarter and found 93.8 per cent of properties sold for a profit, a slight dip from the March quarter when 94.1 per cent resold for a profit.

CoreLogic Head of Research Eliza Owen said the timing coincided with successive interest rate hikes from the Reserve Bank of Australia.

“This particular Pain & Gain report provides a line in the sand and confirms the moment when the housing market peaked and started to turn,” she said.

 “The figures align with peak growth in our national Home Value Index and highlights the decline in the rate of profit-making sales, which has been largely influenced by an increase in the rate of loss-making resales in Sydney and Melbourne.”

In Sydney, home values dropped 2.8 per cent over the three months to June, resulting in the city’s rate of loss-making sales increasing 160 basis points to 6.4 per cent.

It was a similar story in Melbourne, where the proportion of loss-making resales climbed 50 basis points to 5.3 per cent, as home values fell 1.8 per cent.

“Multiple interest rate hikes have led to a weakening in the home values in Sydney and Melbourne, however, residential resale results in some cities remain strong with significant gains across almost all resales,” Ms Owen said. 

“Resales data suggests a notable increase in loss-making unit sales across the Sydney council region, including in high-density city fringe markets like Waterloo, Zetland and Roseberry.”

Source: CoreLogic

Hobart and Canberra topped the capital cities for the rate of profit-making sales, each with 99.1 per cent of resales making a nominal gain. 

Hobart has recorded four consecutive years of vendors recording the highest rate of nominal gain across the greater capital city markets. 

Ms Owen said the improvement in some cities during the June quarter may reflect the actions taken by motivated sellers who took advantage of a recent high in dwelling values.

Darwin had the highest proportion of loss-making resales for the June quarter at 26.8 per cent, but this had fallen from 28.1 per cent in the March quarter.

In Perth, 14.8 per cent of resales made a loss, down from 15.6 per cent the quarter before, while 2 per cent of Adelaide resales sold at a loss.

Houses Vs units

Nationally, houses make a nominal gain in 96.5 per cent of resales, which is up on units 88.1 per cent.

But both houses and units have recorded an increase in loss-making resales, with the house market declining about 10 basis points in the June quarter, while units fared a little worse with the rate of resales that made a nominal gain dropping 70 basis points.

Source: CoreLogic

 “The relative strength in return from the house segment comes down to a few factors, including the value associated with land and the strength of owner-occupier demand for houses over the past two years,” Ms Owen said.

Owner-occupiers also fared better than investors, with 96.7 per cent of owner-occupier resales making a nominal gain, compared to 90.9 per cent for investors.

Source: CoreLogic

Regional markets

In regional areas it was a different story, with the rate of loss-making resales trending lower through the June quarter, falling 30 basis points to 5.4 per cent from March.

Ms Owen said it was one of the lowest periods of loss-making resales since the three months to April 2008. 

She said regional Australian home values rose in the June quarter, bucking the national trend, however regions have since followed the capital city markets into a relatively sharp housing market downturn. 

Through July and August, regional Australian home values declined 2.2 per cent from a peak in June, which is likely to weigh on profitability in the regions going forward. 

Tree change and sea change markets continue to record increases in profitability, with only 1.9 per cent of resales in coastal and non-coastal lifestyle areas recording a nominal loss in the June quarter, down from 2.3 per cent in the three months to March 2022. 

Ms Owen said this marked a record low for the rate of resales with a nominal loss for the combined tree change and sea change markets.

“There were slight increases in the rate of loss-making sales across Geelong, the Gold Coast, Richmond Tweed and the Sunshine Coast, but these increases were marginal,” she said.

“Nonetheless, it is unsurprising to see these markets experience a slight shift in profitability, given these same markets are leading a sharp decline in value across regional Australia.”

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Kylie Dulhunty

Kylie Dulhunty is the Deputy Editor at Elite Agent.