CoreLogic’s latest Pain and Gain report debunks the view that ‘you never lose money on property’, although it turns out that the old saying isn’t far from the mark.
According to the report, among homes resold in the June quarter of 2018, 90% fetched more than their original purchase price, collectively delivering their owners a tidy profit of $15.7 billion. Yes, billion.
This confirms that property really can be a nice little earner. However, not everyone made money on the resale of their home or investment property. Just under one in ten homes resold over the 3-month period turned in a loss.
Why properties may sell at a loss
There can be a variety of reasons why a property doesn’t make a profit on resale. However, there are key factors happening in the market right now that can provide common threads.
First up, over the past 12 months the property market has cooled in two of our biggest cities – Sydney (down 6.1%) and Melbourne (3.4%). Home values have also weakened in Darwin (down 3.7%) and Perth (2.8%)1.
Bottom line is, anyone who purchased property in these cities with a plan to turn a quick buck may have had their fingers burned when the market turned.
CoreLogic also found investors (10.1%) were marginally more likely to make a loss than owner occupiers (9.8%). But this doesn’t always faze investors. That’s because losses on the sale of one asset can usually be offset against gains on another, thereby reducing an investor’s overall capital gains tax bill.
The third factor to bear in mind is that apartments were far more likely to record a loss on resale than houses, with 91.5% of houses, compared to 85.2% of units, recording a gross profit resale. This may reflect the significant increase in the number of apartments that have come onto the market in recent years2.
A long term outlook pays
CoreLogic’s study confirms that it’s not set in cement that you’ll make money on property – even though the overwhelming majority of people do.
That said, the study did dish up one critical finding: the longer you hold onto a property, the more likely you may be to make a profit on resale.
As a guide, houses that resold at a loss had typically been owned for just 6.6 years, while those that resold at a profit had been owned for 9.2 years. The margin for apartments is narrower but still evident. Units resold for a loss had typically been owned for 6.9 years while those that resold for a profit had been owned for 7.8 years.
The bottom line
The key take out is that if you plan to sell your home, you’re likely to make money on the place unless you purchased relatively recently.
Yes, property values have fallen in some areas in the last few months (which also delivers good buying opportunities), but as CoreLogic point out, despite the recent falls in Sydney and Melbourne, home values remain 46% and 40% higher than they were five years ago, highlighting that “most home owners in these cities continue to benefit from a substantial lift in wealth from the boom in housing”3.
If you’re considering selling your current home, and you’re unsure whether cooler market conditions will work for, or against, you, have a chat with our Mortgage Choice Home Loan experts to know where you stand.
You might also be interested in:
1.CoreLogic media release: Australia’s housing correction marks its twelve month anniversary with values down 2.7% since peaking in September last year, 1 October 2018
3.CoreLogic media release: Australia’s housing correction marks its twelve month anniversary with values down 2.7% since peaking in September last year, 1 October 2018