The rate of profit making resales has continued to increase, overcoming widespread lockdowns in many areas of the country.
The latest Pain & Gain Report from CoreLogic shows the rate of profit-making resales across Australia rose to 92.4 per cent in the September 2021 quarter, up 50 basis points, making it the most profitable quarter in a decade.
The September quarter was marked by COVID-19 induced lockdowns across Sydney, Melbourne and Canberra, which makes the high rate of profitable resales all the more impressive.
The median gain made on resales through the September quarter across the country was $270,000, while median losses were $37,000. Resales had a typical hold period of 8.8 years, which was similar to the previous quarter.
Notably, the move towards the regions has continued to gain momentum during the September quarter, with regional Australia continuing to have a higher rate of profitable resales than the capital cities at 93.1 per cent versus 91.1 per cent respectively.
“The increase in the rate of profit-making sales is a reflection of strong capital growth across Australian dwelling markets despite COVID-induced disruptions to transaction activity,” Ms Owen said.
“The three months to September was the fifth consecutive quarter in which the rate of profit-making sales across Australia increased.”
“Resales had a typical hold period of 8.8 years, which was consistent on the previous quarter. However as the market finds a peak over the next couple of years, this may incentivise more resales and we may see the average hold period shift higher, as more owners look to cash in their long-term gains.
“Properties held for more than 30 years had the highest median gain of just over $745,000. However, the highest nominal gains per year were achieved by those on the other end of the spectrum, who have held property for two years or less. The median gain on resales of property held for less than two years was $120,000.”
Ms Owen said the exodus of people from the major capital cities is behind the sharp increase in profit-making resales in the tree and sea-change locations.
“Both broad regions saw an increase in profitability over the quarter, but regional Australia has seen a more rapid increase in the rate of profit-making sales, and this trend is likely to continue as regional dwelling growth saw momentum ramp up toward the end of the year,” she said.
“The highest portion of profit-making sales was in Bendigo, at 99.8 per cent. This was followed by Hume (99.5 per cent), the Sunshine Coast and Ballarat (99.3 per cent).”
“Sea-change and tree-change markets have seen immense price growth over 2021, as the prevalence of remote work amid the pandemic, the relative affordability of regions, and the potential for retirement decisions being brought amid labour market disruptions contributed to elevated levels of migration to regional Australia through 2021.”
Resource-based markets had higher levels of loss-making sales, but are showing the most rapid signs of improvement. From the six major resource markets analysed, the total incidence of loss-making sales fell from 32.5 per cent to 29.2 per cent.
Houses continued to have a higher chance of a profitable resale, at 95 per cent versus units at 86.5 per cent.
Owner-occupiers had a higher rate of profit-making sales around the country at 95.5 per cent compared to investors at 89.7 per cent. However, investors in Hobart were big winners, where 100 per cent of investment home resales made a nominal gain.
With house prices continuing to rise across the country, the portion of profit-making sales is expected to continue rising in the coming quarters, however, that could eventually slow down according to Ms Owen.
“There are accumulating headwinds for property market performance in the coming months, in the form of higher supply of advertised stock, normalising interest rates, affordability constraints and the possibility of tighter lending restrictions,” she said.
“A downswing in Australian housing market values would ultimately impact the profitability of resales, particularly for recent purchasers.”
Across Sydney, the portion of profit-making sales rose to 95.7 per cent in the September quarter, up from 95 per cent in the June quarter. The proportional increase in loss-making house sales across Sydney was marginal, however, loss making units sales were seen in Parramatta and Sydney.
Sydney is seeing a relatively rapid slowdown in growth rates, which may see a turn in dwelling value growth, and profitability, over the next few years.
The portion of profit-making house sales rose to 99.5 per cent of house sales in the September quarter, up from 99.2 per cent through June. Loss-making sales were more prevalent in unit markets in the suburb of Melbourne.
The Melbourne property market has shown some weakness in recent months, with houses leading a fall in values through the month of December, which could affect levels of profitability for more recent buyers in the coming months.
Profit-making sales across Brisbane increased 80 basis points to 90.9 per cent through the September 2021 quarter. However, profit from resales across Brisbane varied significantly between houses and units, with 98.3 per cent of houses sold at a nominal gain in the quarter, compared to 75.4 per cent across the unit segment.
The rate of profit-making unit sales has increased sharply, from 72.3 per cent in the June quarter, and 66.8 per cent thanks to the strength of the overall market and significant migration.
Adelaide has seen a sharp reduction in the portion of loss-making resales over the past year, from 10.4 per cent at September 2020, to just 3.8 per cent in the three months to September 2021. Adelaide had the third highest rate of profit-making sales across the capital cities through the quarter (at 96.2 per cent), behind Hobart (98.2 per cent) and Canberra (96.5 per cent).
Adelaide is likely to see an increase in the rate of profit-making sales in the coming quarters given the low stock levels, more favourable migration trends and the strong economic recovery.
Profit-making sales represented 85.8 per cent of house resales in the quarter, up from 84.3 per cent in the three months to June, while profit-making unit sales increased from 59.2 per cent to 61.6 per cent across the unit segment.
The sharp increase in the rate of profit-making sales was the highest of the capital city markets, reflecting the continued recovery that has taken many years.
Hobart had the highest rate of profit-making sales across the capital city markets through the September quarter, at 98 per cent.
However, the rate of profit-making sales fell 20 basis points and trended lower from a recent peak of 99.1 per cent in the March 2021 quarter.
Darwin had the lowest rate of profit-making sales across the capital city markets through the September 2021 quarter, at 65.9 per cent.
Through the September quarter, the pace of growth in Darwin property values slowed to 0.7 per cent. As capital growth trends weaken across the city, the rate of profit-making sales may stabilise around current levels.
Canberra had the second-highest rate of profitmaking sales across the capital city markets, at 96.5 per cent.
Much of the increase in profit-making resales has come from the unit segment, where the incidence of profit-making sales increased 12.6 percentage points over the year.