The latest Pain & Gain report show's Regional Australia’s purple property patch continued in the final three months of last year, as a higher proportion of vendors in regional areas reaped a profit compared to their capital city counterparts.
CoreLogic’s latest Pain & Gain Report shows 93.8% of resales made a nominal gain, up from 92.4% in the previous quarter for a total nominal profit of $38 billion. This marks six consecutive quarters of increases in the rate of profitability, starting from the September quarter of 2020, when Australia’s housing market began an extraordinary uplift in value.
Regional Australia saw nominal gains for 94.0% of sales, compared with 93.7% of capital cities.
CoreLogic’s Head of Research Eliza Owen, says it was another remarkable result with many trends in the December quarter consistent with previous results.
“Houses saw a higher instance of profitability than units, at 96.2% and 88.6% respectively,” Ms Owen says.
“Investors had a lower incidence of profitability (91.4%) than owner occupier sellers (96.7%). As noted in previous quarters, hold periods between investor and owner occupier sellers were quite similar, with the lower instance of profit-making sales among investors likely being more a feature of the type of stock purchased, where investors accounted for over half of unit resales in the quarter (57.4%).”
Despite the strong profitability results, it is not a record high. The highest rate of profitable sales occurred in the three months to April 2004, when 97.2% of resales sold for a nominal gain.
“This rate of profitability occurred off the back of Australia’s longest housing market upswing on record, which was almost uninterrupted from September 1995 to January 2004, and saw housing values nationally increase 109.7%,” Ms Owen says.
The report analysed approximately 133,000 resales of property that occurred over the course of the December 2021 quarter, a significant uplift from the 99,000 dwelling resale transactions during the September quarter, which coincided with lockdown restrictions in many parts of the country.
The national median nominal gain was $319,000 with total resale profits of $38 billion over the December quarter. The median loss was -$34,000.
Profits by hold periods
The median hold period on all sales was 9.1 years through the quarter, with the median difference between the initial and resale value sitting at $300,000 in the period. Properties held for more than 30 years had the highest total median return of $770,000.
Capital city gains
Across the capital cities, Sydney had the highest median dollar value gain from profit making resales across the capital cities, at $536,500. Hobart was the capital city with the highest incidence of profit-making sales in the quarter, at 98.3%, followed closely by Canberra (98.2%).
Darwin maintains the title of the least profitable city, with the rate of loss-making sales through the December quarter sitting at 26.9%. While this seems high relative to other capital markets, the rate of loss-making sales across the city has almost halved from a year ago (48.5%).
Houses vs Units
House sellers have historically seen a premium on nominal gains compared to those reselling units. The difference in nominal gains between houses and units across Australia has become particularly large through the current housing market upswing.
In the year to December 2021, national house values increased 24.5%, compared with a 14.2% lift in national unit values. The rate of profit-making sales for the December quarter was 96.2% across Australian houses, and 88.6% across units. While units were around 34% more likely to see a loss-making sale than houses, the instance of loss-making sales is falling faster in the unit segment over time. The rate of loss-making unit sales fell 2.3 percentage points in the quarter from 13.6%, compared to a decline of 1.1 percentage points from 5.0%.
Ms Owen says Australia’s rate of profit-making sales broadly aligns with capital growth performance and as such future expectations for continued gains are mixed.
Increased profitability may be recorded in the coming months as Australian home values rose a further 2.4% through the March quarter of 2022. However, Ms Owen warns Australia’s housing market may be nearing a peak value, with more divergent performance emerging across markets.
“Higher average mortgage rates, rising advertised stock levels and affordability constraints are already seeing values slip across Sydney and Melbourne and the impact of interest rate tightening may also affect profitability for more recent buyers,” she said.
“In the April Financial Stability Review, modelling from the RBA suggested a 200-basis point increase in the cash rate from current levels could lead to a 15% decline in real house prices over a two-year period. A 15% decline in the current median dwelling value across Australia would take prices close to May 2021 levels, and those having purchased around that time may see an increased chance of making a nominal loss through to 2024.
“However, resales within three-year periods make up around 10% of resales and we know historically the volume of resales tend to decline in a falling market.”
Key findings for Pain & Gain, Dec Quarter 2021
- The December quarter Pain & Gain Report analysed 133,000 dwelling resales
- Of those, 94.8% recorded a nominal profit-making gain from the previous purchase price
- The median nominal gain made on resales nationally was $319,000, while median losses were at -$34,000
- Sydney had the highest median dollar value gain from profit making resales across the capital cities, at $536,500.
- Hobart was the capital city with the highest incidence of profit-making sales in the quarter at 98.3% followed closely by Canberra (98.2%).
- Nationally the median hold period for profit-making resales was 9.2 years
- Properties held for more than 30 years had the highest total median return of $770,000
- Properties held for two years or less had the highest nominal gain per year of $150,500
- House resales continued to have a higher chance of nominal gain (96.2%) than units (88.6%)
- Regional Australia had a higher rate of profit than Australia’s combined capitals at 94.0% versus 93.7% respectively
- The coastal regions with the highest proportion of profitability were Geelong in Victoria and the Sunshine Coast in Queensland, which each saw 99.5% of resales achieve nominal gain.
To download a free copy of the latest Pain and Gain report, please click here.