Profit-making properties keeping pace with price gains

Profitable property sales continue to rise nearly as rapidly as house prices, with research showing more than 90 per cent of properties sold for more than they did previously in the first three months of the year.

CoreLogic said its analysis of around 98,000 resales in the March quarter revealed 90.3 per cent of properties sold were done so at a profit, up from 86 per cent in the three months to the end of June last year.

Over the three months to the end of March home values rose by 5.8 per cent nationally, contributing to a 10.1 per cent rise through 2021 to date.

But the research revealed not all markets are equal, even as prices remain on an upwards trajectory, with a big divergence in the percentage of profit-making sales on a state-by-state basis, as well as by dwelling type.

Hobart and regional Victorian vendors were the most successful, with just 1.6 per cent of sales in the quarter done so for a loss.

Just 5.5 per cent of Melbourne sales in the quarter made a loss, 6.1 per cent in the ACT and 6.4 per cent in Sydney and Adelaide.

On the other side of the ledger, the Darwin and Perth property markets continued to show they are emerging from a prolonged downturn in property values, with 38.9 per cent and 26.2 per cent of properties sold in the three months to the end of March done so for a loss.

While the loss-making sales were elevated as compared to other cities, profitability in Darwin, Perth and regional WA improved markedly over the quarter.

CoreLogic head of research Eliza Owen said while the housing upswing would continue to support improved profitability, record high dwelling values mean that buyers should be cautious of potential headwinds.

“At the national level, these include affordability constraints, eventual mortgage rate rises and the remaining threat of COVID clusters,” Ms Owen said.

“For some pockets of the market, ongoing international border closures have already led to more subdued price growth, and a decline in rental return.

“These factors may slow the growth in profitability derived from housing in the coming quarters.”

Units were twice more likely to be sold at a loss than houses, with 16.8 per cent of units across the country sold for less than the previous purchase price.

Ms Owen said the stronger growth in house prices as compared to units had contributed to detached dwellings’ greater rate of profitability.

“While both house and unit values are in an upswing, quarterly growth in house values through March 2021 was 6.5 per cent, compared with 3.4 per cent across units,” Ms Owen said.

“While the rate of loss-making house sales was below the decade average of 9.3 per cent, the rate of loss-making unit sales was still elevated above an average 15.5 per cent for the past 10 years.”

Most profitable locations

Sydney’s blue-chip suburbs paced NSW for profitability, with 98.6 per cent of transactions in the Northern Beaches done so for a gain, while 97.4 per cent of homes in Woollahra were sold for a profit.

In Victoria, the Casey Local Government Area recorded just 0.9 per cent in loss-making sales, while 99 per cent of transactions on the Mornington Peninsula were made for a profit.

Brisbane’s most profitable LGA was Redland, at 94.5 per cent, followed by Scenic Rim at 6 per cent.

In South Australia, 99.3 per cent of Adelaide Hills homes sold for a profit, while homes in Unley also performed well, with just 1.3 per cent making a loss.

Perth’s best performing LGA was Cottesloe, where 11.7 per cent of sales in the quarter were done so for a loss.

Profits motivating sellers

Against the backdrop of big profits, more Australians are preparing to take their properties to market.

Research released this week by Westpac showed 39 per cent of home owners surveyed by the bank planned to sell a property in the next five years.

Westpac managing director of mortgages Anthony Hughes said the bank’s report would be welcome news for buyers, who are facing stiff competition to secure their dream homes.

“Properties further from the city boasting backyards and a more relaxed lifestyle remain top of mind for buyers, and for the first time, more homeowners are telling us increased infrastructure and amenities in their desired area is also motivating them to sell, with public transport, local shops and parks ranking as the most desirable suburban features,” Mr Hughes said. 

“While the report found houses are most in demand, units and apartments still remain a popular option - particularly among younger buyers who are more likely to seek the convenience and access to local cafes, restaurants and bars, as well as downsizers who might be seeking a coastal lifestyle.”

Mr Hughes said the report also identified the suburbs in each capital city where sellers were most likely to put a property up for sale.

“Areas featured on the list offer a diverse range of living options for prospective buyers that also cater to the changing preferences we’ve seen since the start of the pandemic, including stronger demand for more space through a dedicated study or spare bedroom as many continue to work from home,” Mr Hughes said.

“Buyers can also consider areas that are poised to have units come onto the market.

“Newly developed suburbs like Sydney’s Wentworth Point or established areas like Adelaide’s Glenelg can be appealing with waterside living options, as well as access to restaurants, recreational facilities and transport.”