How much it costs to buy a home in the suburbs where buyers pay cash

Home buyers are spending millions of dollars to purchase property without a mortgage in a string of downsizer-friendly and investor-heavy suburbs that have the highest share of cash sales.

The median value of cash purchases is as high as $3.35 million in Sydney’s Darling Point and $2.3 million in Melbourne’s Toorak, research from property settlements platform PEXA shows.

In some affluent neighbourhoods, the median price paid by unencumbered buyers is even higher than the median price for all property sales in the suburb.

More than one in four property transactions last year were settled without a mortgage, and the share increased from the previous year.

In Sydney’s Milsons Point and Darling Point, where at least three in five homes that changed hands were bought without a mortgage, the median value of cash purchases was $2.5 million and $3.35 million, respectively.

Buyers also paid more than $2 million for the typical cash purchase in Mona Vale ($2,375,000) and Manly ($2,255,000).

In Melbourne, among the suburbs where at least two in five homes were bought without finance, the highest price paid by cash buyers was in exclusive Toorak at $2.3 million.

Cash buyers also paid a median $2.12 million for homes in nearby Malvern, and $2,018,000 in bayside Brighton.

By contrast, buyers paid just $235,000 for the median cash purchase in Carlton, likely for modest investment properties to rent to students at nearby universities, and $603,500 for the typical cash purchase in the investor-heavy Melbourne CBD.

In Brisbane, among the highest suburbs for cash purchases, the biggest spend was in New Farm at $1.3 million.

PEXA chief economist Julie Toth said there are three main types of cash buyers: tree-changers trading down from a more expensive city property to a regional home, investors, and families or mature buyers in high-value neighbourhoods.

“The census tells us that around a third of all households do own their own homes outright, and that’s actually higher for these types of suburbs where we have an older, wealthier resident population, and they’re trading homes without requiring a mortgage in some cases,” she said.

“Because we are looking at suburbs with much higher than median incomes and wealth holdings, they will have other sources of finance.”

For example, buyers may have other properties, family trusts, savings, shares or other types of funding beyond a home loan.

She said some homes at higher price points trade off-market and are not advertised or taken to auction.

But she highlighted the low prices paid in Melbourne’s inner city, often by investors.

“Carlton, in particular, has a very large number of student units that are available for investors,” she said. “Melbourne 3000, the apartments get larger but there’s still a very large number of student units that are being purchased as investments.

“That’s true in the Sydney CBD but not to the same extent.”

The figures come as interest rates have risen, which has reduced the amount property buyers can borrow and spend at auction if they are relying on a home loan.

But buyers who have a high net wealth and are not encumbered with debt generally benefit from rising interest rates, Toth said.

Although real estate agents emphasise that they do not ask whether their buyers are paying cash or taking out a mortgage, they often see downsizers selling long-term family homes and making their next move.

In Melbourne’s bayside Brighton, Nick Johnstone of the eponymous agency said many downsizers are moving out of a home worth about $5 million and buying a $3 million home instead.

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“Their kids have moved out, they’re in their mid-60s, they’ve got no mortgage, they’re generally the cash buyers,” he said.

“There’s also a lot of people who have recently sold businesses who are maybe upgrading – they’ve sold their business for a large sum and they’re cash buyers.

“If it’s a house you’re living in there’s no capital gains tax, so it actually advantages you to pay out your mortgage.”

In Sydney’s Milsons Point, Milson Real Estate selling principal Chris Bell said many clients are long-term owners downsizing from the upper north shore.

“That’s probably one of the most common trends that we see. They’ve sat on a property for 30, 40 years, and they’ve sold, and that normally influences the budget of what they’re looking to purchase,” he said.

But investment grade properties such as smaller studios and one-bedrooms are becoming harder to sell, as investors with cash could earn higher returns in term deposits now than rent, he said.