Profit-making resales jump thanks to hot property market

The number of home owners selling their property at a profit jumped in the March 2021 quarter thanks to the record run for property prices.

According to the latest, Pain and Gain Report from CoreLogic, 90.3 per cent of homeowners were able to sell their property for more than they paid for it between January and March of 2021. That number was up from 89.1 per cent in the previous quarter.

The number of profit-making resales has seen a dramatic increase over the past 12 months, with the lowest level coming at the height of the COVID lockdowns in June last year, when only 86 per cent of properties were selling at a profit.

While the overall trend of profit-making resales is pushing higher, there are still some discrepancies between different areas.

Notably, regional Australia is continuing its downward trajectory of loss-making resales for the fifth consecutive quarter, while units were more than twice as likely to sell at a loss as houses. Interestingly, owner-occupiers enjoyed a higher incidence of profitability than investors.

Head of Research Australia at CoreLogic, Eliza Owen said property owners can thank the hot market for the increase in profit-making resales.

“Between the market bottoming out in September 2020, and the end of March 2021, Australian dwelling values have risen 8.2 per cent. The total profit reaped by sellers in Q1 2021 was $30.6 billion nationally. This is actually down from $32.2 billion in the December quarter, but that is likely a reflection of seasonally lower sales activity through the start of the year.

“March 2021 also marked the fourth consecutive quarter where regional Australian resales sustained a higher rate of profitability than in the capital city markets – 90.6 per cent of regional resales saw a profit through the quarter, compared with 90.0 per cent of capital city sales.

“However, the gap in the rate of profit seen between capital cities and regions has narrowed, and is likely to keep narrowing given capital city growth rates have been closer to regional value growth rates through April and May.

“While there were fewer loss making resales across both houses and units in Q1, the rate of loss making sales remains substantially elevated in the unit segment. In the three months to March, 16.8 per cent of units sold for a loss across Australia; almost two and a half times the rate of loss making house sales (6.8 per cent),” Ms Owen said.

The report also notes that there has been a clear increase in many of the regional areas where people moved to during lockdowns. However, other regional areas remain mixed.

“‘Sea change’ and ‘tree change’ markets have generally seen an uplift in the rate of profit making sales through the March quarter, including an extraordinary 99.5 per cent of Ballarat sales making a profit through the March quarter.

“Resource-based housing markets across WA and the NT still have elevated rates of loss making sales, but they are also seeing the fastest decline in the rate of loss making sales, as increasing mining activity is contributing to a rapid recovery trend in the housing market.

“This particularly true of the WA Outback North SA4 market, which includes the Pilbara region. Loss making sales have gone from 63.6 per cent of all resales in the March 2020 quarter, to 37. per cent of resales in the March 2021 quarter.

“There are still pockets of risk in the Australian housing market, despite a broad based upswing in values. This quarter, we took a look at the case of the Melbourne LGA unit market,” Ms Owen said.

“The volume of loss-making unit resales had reached a record high at 173. However, this is in the context of rising overall sales volumes, and still wasn’t at a peak proportion.

“For this region, investor sales may have been triggered by rental values falling more than 20 per cent over the year. As long as COVID weighs on international travel and inner-city economic activity, this market is likely to see subdued performance.”

Ms Owen said while the market has been strong, things will likely slow down.

“Overall, a broad based housing market upswing continues to support improved profitability in housing market resales,” she said.

“However, with the dwelling market at extraordinary record high values, there are potential headwinds for buyers to be cautious of. At the national level, these include affordability constraints, eventual mortgage rate rises and the remaining threat of COVID clusters.

“For some pockets of the market, ongoing international border closures have already led to more subdued price growth, and a decline in rental return. These factors may slow the growth in profitability derived from housing in the coming quarters.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.