19 October 2015

Capital cities a better bet for residential investment

A recent report from RP Data that compares the most recent sale price to the previous sale price in order to determine whether the property sold at a gross profit or gross loss, has highlighted the fact that the capital city housing markets continue to record a lower proportion of loss-making resales than regional areas of the country. 

"Capital City housing markets 
continue to prosper 
over regional centres."

Over the June 2015 quarter, 9.1% of all homes resold nationally recorded a gross loss when compared to their previous purchase price. But while this figure may sound high, it is important to note that the vast majority (90.9%) of properties resold over the quarter did so at a profit. In fact, 30.8% of homes resold for more than double their previous purchase price.

Although there was a slight rise at a national level, the proportion of loss-making resales has consistently been below 10% over the past 16 months, showing a significant improvement in loss-making resales, which were as high as 12.9% over the September 2012 quarter.

However, some of the major regions of the country which are intrinsically linked with the resources sector show that a heightened level of loss-making sales is evident as the mining investment boom slows. Over the June 2015 quarter, 47.6% of properties resold in Mackay sold at a loss, as buyer demand remains relatively low in these markets.

Throughout the combined capital cities, the proportion of loss-making resales is much lower (6.1%) than across the combined regional areas (15.2%), with the proportion of loss-making resales largely trending lower in Sydney, Melbourne, Brisbane, Hobart and Canberra.

The Brisbane council area, at 6.3%, has significantly lower proportions of loss-making sales compared to all other regions in South-East Queensland, where the proportion of loss-making resales was in double digits.

"Regions with growth aligned
with the resources sector 
show heightened losses."

The data also highlights the divergent trends across housing markets over time. Ownership of property, whether for investment or owner occupier purposes, should be seen as a long-term investment. Across the country, those homes that resold at a loss had an average length of ownership of 5.3 years. Across all sales recording a gross profit, the average length of ownership was recorded at 9.9 years, while homes which sold for more than double their previous purchase price were owned for an average of 16.4 years.

It is also interesting to note that the data suggests that apartments tend to perform better than houses for returning a profit over a shorter hold period.

Source: CoreLogic RP Data, Pain and Gain Report, June Quarter 2015

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