Investors less savvy than owner-occupiers when it comes to property profits

Investors are three times more likely to incur a loss from resales compared to owner-occupiers who continue to see a greater rate of profitability, according to new June quarter data.

Analytics company CoreLogic’s recent Pain and Gain Report analysed around 83,000 resales and found owner-occupiers had a higher incidence of profit from resale than investors, and the extent of profit and loss also showed a better outcome for them at a national level.

Investors comprised 29 per cent of resales but represented 56.6 of loss-making resales while owner-occupiers accounted for 71 per cent of the total, and 43.4 per cent of loss-making resales.

Rich Harvey, Buyers Advocate and CEO, propertybuyer.com.au told API Magazine he believes the reason some investors are feeling resale pain is due to impatience.

“For example, some people that bought inner city apartments in Brisbane 12 years ago when there was a huge supply, they’ve made losses, though they’ve actually finally caught up, but people that buy apartments off-the-plan in oversupplied areas are going to suffer, particularly when they sell out early because of the transaction costs.

“The impatient investor will lose; property’s the long game and those that buy well, hold, add value, they’re the ones that always win, and property shouldn’t be treated like a poker machine or with a gambling mindset approach.”

Investor median profits in the June quarter were more than $120,000 lower than owner-occupiers who averaged a $328,000 gain and $37,000 loss.

Investors were overrepresented in markets that have higher levels of loss-making sales, with the most concentrated in Darwin (42.5 per cent), followed by Sydney (38.6 per cent) and Melbourne (32.5 per cent).

Darwin was a standout capital city for the resale pain felt by both cohorts, finding 26.5 per cent of owner-occupiers and 44.2 per cent of investor lost significantly, while Adelaide proved the most profitable capital city of all, with 0.5 per cent of owner-occupiers making a resale loss and 99.5 per cent a gain, compared to 2.1 per cent of investors that made losses, while 97.9 made gains.

Adelaide is the most profitable city for investors

One hundred per cent of resales in the Adelaide suburbs of Prospect, Unley, Marion, Mallala and Burnside, returned an average $337,328 gain and 99 per cent profitability was recorded in Gawler, Holdfast Bay, Norwood-Payneham-St Peters, Onkaparinga, Playford, Salisbury and Tea Tree Gully with a median profit of around $250,000.

Lachlan Turner, Managing Director, Turner Real Estate, Adelaide told API Magazine the rediscovery of Adelaide’s affordability, city services and lifestyle choices during Covid explains the ongoing returns on sales.

“Covid was the trigger in this upward interest in Adelaide, which is still an affordable city in relation to Sydney and Melbourne and now Brisbane, so its affordability is appealing but as demand continues it is exceeding the supply.

“Historically, spring is a time when sales volumes increase, so we budget for more sales and more revenue but that hasn’t happened yet and there just seems to be a longer-term trend in low stock levels being available, so I think that’s what is driving the profitability because people who are selling are doing it in a market where there is high demand from buyers,” Mr Turner said.

Distressed selling is likely playing in a role in new listings.

“I think that’s probably occurring a little bit. We’ve got a very large rent roll with properties we manage for investors and there’s no question that a number of them, not a wholesale sell-off, but certainly affordability through interest rates has decreased and some of them have sold for that reason.

“However, if someone did buy two years ago in Adelaide, and they needed to sell, I don’t think they would lose, unless they overpaid and there’s always that potential risk but it’s a rising market and Adelaide’s been the only one that’s risen every month and every quarter since Covid, whereas Sydney and Melbourne went down around 9 per cent,” he said.

Spike in national short-term resale losses

Investor losses are not exclusive to the resale market overall and, in particular, short-held resale figures have spiked in losses from just under 3 per cent in June last year to almost 10 per cent of all properties resold within the past two years.

Houses made up 66 per cent of short-term, loss-making resales, 63.3 per cent of which were in capital cities. Nominal gains over two years were a median of $75,000 and the median loss $30,000.

Queensland’s Gold Coast, Sunshine Coast and Brisbane, and in NSW the Central Coast and Blacktown, which both have shown unusual seasonal uplifts in new listings over the past few months, are among the top 100 loss-making, short-held resales.

“Investors are much more sensitive to interest rates and that could be a reason but for those that have bought in those areas are kind of first in, first out, because they can’t afford to hold the mortgage in those areas,” Mr Harvey said.

Eliza Owen, Head of Research, CoreLogic, describes the past two-years as significant because they begin at the height of pandemic-related lockdowns when interest rates were low, and end in the current transition for mortgagees from low fixed rates to high variable rates.

“The portion of homes sold within just two years increased by one percentage point to 8.5 per cent over the past year, however, the portion of these short-term resales where the seller incurred a loss has increased more substantially, from just 2.7 per cent a year ago to 9.7 per cent in the June quarter, suggesting more sellers are willing to incur a loss at the moment, which could in part be the result of high interest rates,” Ms Owen said.

For investors looking to buy, Mr Harvey sees hesitancy in the market due to high mortgage rates and borrowing capacity being down but rental yields are proving attractive.

“Because the rents have gone up, it’s attracting more financial investors back into the frame, so you’re finding those investors that have got the means are thinking, it’s a great time to buy because investors are circling knowing that there’s going to be some more motivated selling and potentially distressed selling.

“For example, we work with expatriate mortgage brokers and we’ve just bought a nice $620,000  two bedroom unit in Albert Park in Melbourne for an investor with probably a 5.5 per cent yield, and that’s pretty typical because the expats are watching the Australian market because our dollar’s trending down and the value they get by converting their Singapore or US dollars back into Australian dollars bumps up their buying capacity.

“We’ve got a lot of migrant interest and wealthy foreigners too who have the Significant Investor Visa who are bringing in quite a lot of cash and they don’t know the market or can’t find the property they want to buy or have as a trophy asset.

“I spoke to a guy yesterday who’s migrating from Hong Kong, he’s got a temporary visa and he’s getting permanent residence and he wants to spend $10-$20 million on a house in Sydney’s Eastern suburbs, so there is definitely an increase in foreign and expatriate investment.”