Nearly 9 from every 10 sellers are profiting from property sales

By Bianca Dabu

March 25 2021
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As property values rose across Australia at the end of 2020, so too did the value of profits, a new report has revealed.

In analysis of approximately 98,000 resales of residential property over the December 2020 quarter, CoreLogic’s latest Pain and Gain report found that the profitability of Australian real estate has increased nationwide, with the rate of profit-making resales rising to 89.9 per cent.

This result has built on pre-COVID levels, when only 87.9 per cent of transactions saw a nominal gain for the seller in the three months to February 2020, and is also higher than the 88.3 per cent result in the June 2020 quarter.

Overall, total gains from resales in the December quarter rose to $31.9 billion, up from $24.8 billion in the previous quarter.

It meant that only 10.1 per cent of properties were sold at a nominal loss – the lowest level since the July 2018 quarter, according to the report. This brings the combined losses from resales to $1 billion from last quarter’s $1.2 billion.

According to CoreLogic’s head of research, Eliza Owen, the rise in the value of profits came off the back of the rise in property values across states and territories, which was “buoyed by a cash rate reduction through November”.

“The results are particularly significant given the uplift in sales volumes in the three months to December, much of which was driven by an increase in transaction activity across Melbourne. Sales and listings increased remarkably across the city, as the economy emerged from the weakness associated with the extended lockdowns,” she added.

Ultimately, Melbourne managed the second highest rate of profit-making sales across all capital cities, at 94.3 per cent over the December quarter – an increase from September quarter’s 93 per cent.

Profit-making abilities were even higher across some parts of regional Victoria, with over 98 per cent of sales returning profits to sellers across Ballarat and Bendigo.

While Melbourne and regional Victoria’s results were strong, Hobart was the real winner over the quarter.

It recorded the highest rate of profit-making sales across all capital cities at 97.2 per cent over the December 2020 quarter, surpassing September 2020 quarter’s 96.7 per cent, the report said.

On the other end of the spectrum, Darwin and Perth saw the lowest rate of profit-making sales at 51.4 per cent and 72.2 per cent, respectively, a result of “the long-running downturn in housing values between mid-2014 and mid-2020”, as noted by Ms Owen.

Even then, Perth saw the largest reduction in the portion of loss-making sales at -4.0 per cent, “buoyed in recent months by a recovery in private mining investment… and interstate migration to Western Australia, [which] was positive for the first time since the June 2013 quarter”, Ms Owen commented.

Between houses and units nationally, houses saw more profit-making sales at 92.7 per cent, whereas units recorded 81.3 per cent of transactions making a nominal gain for the seller.

Ms Owen said that the more rapid increase in the rate of profit-making house sales over the quarter “may reflect the particularly high levels of owner-occupier and first home buyer market participation seen over the year”.

Indeed, owner-occupiers saw a higher 92.2 per cent of resales making profit at a national level, compared with 84.9 per cent among investors.

Looking ahead, the research head said that the rate of nominal gain from property sales is expected to increase further in 2021 as “values have continued to increase on a fairly broad basis through the start of the year, and the headwinds presented by COVID-19 seem to be easing month to month as a vaccine is rolled out”.

However, she warned buyers of certain regions where loss-making sales are high, particularly across mining regions.

“Owners [in these regions] have some time to wait before expecting nominal gains on their purchase if they bought around the market peaks,” the researcher concluded.

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