Suburbs where property owners are selling at a loss

Hundreds of property owners are selling their units at a loss in a handful of high-density neighbourhoods, new figures show.

The apartment pain bucks the trend as most property sellers in Australia make money, CoreLogic research found.

Of the property owners who sold in the December quarter, 94.8 per cent made a nominal profit, barely down from 95.1 per cent in the previous quarter, as property values weakened, the latest Pain and Gain Report found.

Sellers made a median profit of $306,000 in the quarter, and the chance of gains was not far below the most profitable period on record – the April quarter 2004 – at 97.2 per cent. The median loss was $45,000, up from $40,000 in the previous quarter.

Profits varied by location and housing type.

Brisbane sellers had the highest profitability across the capital cities, at 99.6 per cent of sales, followed by Adelaide at 99.1 per cent and Perth at 97.4 per cent.

But 92.5 per cent of Sydney sellers made a gain, while Melbourne slipped to 89.2 per cent. Before last year, the last time Melbourne was below 90 per cent was in the three months to November 1998.

Of the properties that made a loss, almost one-fifth were in just three regions: inner Melbourne units (734 losses), Parramatta units (256) and Ryde units (163).

A burst of unit development in the 2010s financed by investors has weighed on capital growth, the research house found, then investor demand in these areas waned once it became harder to borrow money.

By local government area, losses in Melbourne were concentrated in the Melbourne City Council area (44 per cent of all sales), followed by Stonnington (30.3 per cent) and Port Phillip (24.9 per cent).

In Sydney, sellers were most likely to lose money in Parramatta (24.2 per cent), Strathfield (23.2 per cent) and Ryde (22.7 per cent).

In Perth, 18.3 per cent of sales in the Perth LGA lost money.

CoreLogic head of Australian research Eliza Owen said owners were largely able to hold onto their properties during the recent downturn, which stopped losses from spreading.

There had been a cluster of resales of properties owned for two to four years as borrowers rolled off their cheap fixed-rate mortgages, and a rise in the share of flips that made a loss, but most flippers still made money.

“We do have an increase in loss-making sales, but it’s increasingly concentrated in these select few markets which are mostly investor-owned property and mostly high-density units,” she said.

“It’s a combination of a lot of high-density development that ended up being an overhang of supply for a channel of demand that got cut off mid-way through the 2010s. And it was building for a consumer that is no longer as prevalent in the market.”

Owen is optimistic that state governments who hope to expand housing supply have a different type of stock in mind now: well-located and higher-quality homes.

But feasibility challenges remain for some new developments.

Quantify Strategic Insights head of data and insights Angie Zigomanis said it was hard to develop new apartments for a high enough price that developers would make a margin.

“If you’re looking at bog-standard investor-grade stock, you have to achieve a higher price than what the market is offering. A lot of these apartments are being sold at a loss so they can’t achieve a price in those areas that’s going to subsidise new development,” he said.

“Effectively, no matter how much land you zone, you just can’t build it until prices get up to a level where it is feasible.”

Oxford Economics Australia head of property and building forecasting Timothy Hibbert said some apartment towers developed over recent years had had rectification issues such as fire safety or water ingress. Repair bills could be large and affect property values.

He believed there was already a capacity challenge in trying to deliver the apartments in the pipeline, let alone trying to hit government targets for new supply.

“There’s a lot that needs to happen to build good-quality, size-appropriate dwellings in good locations,” he said.

For prospective home buyers, buyer’s agents often recommend looking for boutique blocks.

Inner West Nest’s Hamada Alameddine avoids larger complexes with amenities like pools and gyms that can increase body corporate fees.

He prefers older, walk-up buildings with less maintenance that have stood the test of time, away from main roads or train tracks.

“You always want to look at the purchase as, what would happen in five years when it’s time to sell it or rent it? Is there going to be demand for it?” he said.

“Some people love the amenity of gyms and pools and lifts … but from an investment perspective, it doesn’t make too much sense for me.”