Nearly half of all apartments sold in central Melbourne during the December quarter were unprofitable due to poor capital gains, according to CoreLogic. Wayne Taylor
Home sellers pulled in a record $306,000 average gross profit in the December quarter, boosted by the sharp gains racked up during the pandemic boom cycle, CoreLogic’s Pain and Gain report shows.
However, the amount and number of loss-making sales also climbed alongside a dip in the national housing values during the same period.
Tim Lawless, CoreLogic’s research director, said the rate of profitability will pick up again in the coming months after prices rebounded last month.
“I think property profits will rise this year because prices are bouncing back,” he said. “The dip in home values early this year has been erased through February, so it’s hard to see profitability falling, at least over the medium term.”
Almost 5000 properties or 5.2 per cent of all resales were sold below their original purchase price, up from 4.8 per cent in the previous quarter. Vendors also incurred deeper losses of $45,000 on average, which is 12.5 per cent higher than the previous quarter.
The bulk of loss-making sales was concentrated in the apartment sector in Sydney and Melbourne, accounting for almost half (47.2 per cent) of all unprofitable resales in the country.
Lawless said the off-the-plan investment and apartment boom in the past decade had created lasting losses for sellers in Sydney and Melbourne.
“I think this is the legacy of that surge in supply we saw between 2012 and 2019 when there was a high density building boom and at least anecdotally, there are still some trust issues surrounding the construction quality in some of those markets,” he said.
“Supply levels in those areas remain high. And I think for investors that bought into those marketplaces hoping for a capital gain, they’re probably going to be disappointed, although they should be seeing some good rental income coming from those properties.”
Inner Melbourne apartments had the highest number of loss-making resales with 734 selling below purchase price, followed by the Sydney suburbs of Parramatta with 256 and Ryde with 163.
Sydney’s Pennant Hills-Epping area has the highest portion of loss-making apartment sales in the biggest capitals, with 48.9 per cent selling below what the vendors paid for, and racking up an average loss of $69,750.
Across central Melbourne, 48.4 per cent were resold for a loss despite a decade-long hold period. In Essendon, more than two out of five apartments made a loss and in Stonnington- East and Stonnington West, nearly three out of 10 were unprofitable.
More than one out of four apartments in Brunswick-Coburg and Port Phillip were sold for a loss and three out of 10 in Boroondara were sold below their purchase price.
Apartments in those areas were sold between $40,000 and $63,000 below their original purchase price despite being held for more than eight years.
In the past 10 years, apartment values in central Melbourne increased by a total of just 1.6 per cent, in Stonnington-West by 16.4 per cent, in Yarra by 26.6 per cent and in Brunswick-Coburg by 32.9 per cent.
Apartment prices in Essendon rose by 37.5 per cent in 10 years while those in Boroondara gained 45.3 per cent. In Sydney, Pennant-Hills-Epping, apartment values lifted by 51.5 per cent.
“If you’re looking at it from an investment perspective, then I think high density areas are prone to oversupply, and can underperform the market, so it may disincentivise investors despite reasonable rental returns,” Lawless said.
“From a more social perspective, it’s probably a good thing that we’ve seen prices not really rising too much, ensuring that this type of stock remains affordable and hopefully addresses some of the affordability challenges in the market, although that’s probably not the sort of stock that first home buyers are looking for.”
Nerida Conisbee, Ray White’s chief economist, said many home owners avoid high rises due to quality concerns.
“A lot of those apartments were built quite cheaply so many home buyers are wary about quality,” she said. “The costs of repairs and maintenance are also quite expensive, so sellers are taking a big hit when selling because buyers would factor them into the purchase prices.”
Arjun Paliwal, head of research at InvestorKit, said those apartments would continue to languish due to poor demand both from investors.
“We’re still seeing a big anti-unit sentiment among our investor clients because of the lack of capital gains,” he said.
“Many of those apartments were not built for the purpose of what people want so there hasn’t been a lot of uptake despite being more affordable than houses or townhouses.”
By contrast, every house and unit sold in desirable locations such as in Dural-Wisemans Ferry in Sydney, Manningham-East in Melbourne and Noosa Hinterland in Queensland were profitable and delivered as much as $802,500 windfall for sellers.
Every home sold in Kenmore-Brookfield-Moggill, Centenary and The Gap-Enoggera in Brisbane’s west were sold above the original purchase price, as well as those in Sunnybank and Rocklea-Acacia Ridge in the city’s south.
Sydney’s Baulkham Hills, Leichhardt, Pittwater and Manly regions were also profitable for sellers, with more than 93 per cent pocketing between $645,000 and $740,000 gross profits on average.
Overall, Brisbane claimed the top spot for profit-making resales in Australia, with almost all resales making a nominal gain (99.6 per cent), followed by Adelaide with 99.1 per cent profitability and Perth with 97.4 per cent of all sales delivering a profit.
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