Corelogic Pain & Gain

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EXPERT INSIGHT

Hobart and regional Victoria profit most, shows latest CoreLogic Pain and Gain report

CoreLogic’s Pain and Gain report for the September 2020 quarter released today has revealed Hobart retained its position as the capital city with the highest rate of profit making resales at 96.6%, while regional Victoria was the most profitable ‘rest of state’ region with 97.5% of dwellings sold for a profit in the three months to September.

Nationally, the proportion of resales that made a profit was 88.1% or $24.8 billion in profits, up from 87.2% or $19.8 billion in the June 2020 quarter. However, the amount of losses also deepened on non-profitable sales, from -$885 million in the June quarter to -$1.2 billion in September.

The Pain and Gain analysis for the September quarter reflects the resilience seen in the property market throughout 2020.

Each of the greater capital city markets, with the exception of Melbourne, saw an increase in the rate of profit making sales over the September quarter. The highest rate of profit making sales was across Hobart, which has been the case since March 2018.

Coastal regional markets were also particularly profitable for sellers, with profit making sales representing over 95% of resales across six major coastal markets: Geelong, Illawarra, the Mid North Coast, the Newcastle Lake Macquarie region, the Richmond Tweed region and the Sunshine Coast. The Sunshine Coast hit a record high rate of profit making sales in the September quarter at 96.4%.

Comparing the capital cities to regional Australia, the portion of profit-making sales increased more rapidly across the regions than capitals.

The combined regional Australian market saw the rate of profit making sales increase 150 basis points, to 89.2% in the September quarter, while the rate of profitability across capital city markets expanded 30 basis points, to 87.2%. This also reflects the divergent performance between regional and capital city real estate markets through 2020.

Houses vs Units

The report also demonstrates that there was generally a higher rate of return for houses ($225,000) than units ($125,000).

Profitability across both houses and units rose across Australia in the September 2020 quarter. The portion of properties sold at a loss among houses fell from 10.2% in the three months to June to 9.6%, while the portion of loss making unit sales fell from 21.4% to 19.6%.

The differential between house and unit profitability narrowed to 10 percentage points in the September quarter, down from 11.2 percentage points in the three months to June. The narrowed differential was a result of unit profitability rising faster than that of houses. Even though the rate of loss making sales declined faster across the unit segment, units were still about 2 times more likely to sell for a loss than houses in the September quarter.

Investors vs Owner Occupiers

A higher portion of property investors sold their dwelling at a loss during the September quarter compared with owner occupiers. Investor sales in the September quarter saw 17.1% of properties sell for a loss, compared with 10.4% of owner occupied sales.

Despite the higher rate of loss observed in investor sales in the quarter, the rate of properties re-sold at a loss was down from 18.0% in the June quarter, while the rate of loss making sales among owner occupiers was down from 11.1%.

The only region where there was a higher incidence of loss making sales among owner occupiers was across Hobart. This has been a consistent trend across the past few quarters. In the three months to September, 3.2% of owner occupied resales saw a nominal loss, compared with just 1% of investor sales.

The relatively low level of loss making sales among both cohorts reflects the exceptional capital growth across the Hobart market. CoreLogic home value indices show dwelling values across Hobart have seen annualised growth of 7.9% for the 5 years to December 2020, the highest annualised growth rate of the capital city markets.

Hold periods

Analysing returns by hold period suggests a greater amount of gain comes from more time in the market.

Over the September 2020 quarter, the median hold period of re-sale events across Australia was approximately 8.5 years. For profit making sales, the median hold period was 9 years, while loss making sales were typically held for 6.7 years. For houses and units, typical hold periods were longer across profit making resales.

The Australian housing market is expected to improve further in the coming months. With record low mortgage rates, a faster than expected economic recovery and relatively low cases of COVID-19, profitability is tipped to trend upwards over the coming quarters.

Eliza Owen is CoreLogic’s Head of Research Australia
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Regional Victoria and Hobart homes profited most in Q4 2020: CoreLogic's Eliza Owen

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Indicative of the magnitude of the profits realised from property over the June 2017 quarter was property resales. Combined, resales earned sellers $18.2 billion in gross profits with the median profit recorded at $195,000. On the downside, gross resale losses totalled $469.6 million with the median loss recorded at $35,000.
The latest CoreLogic Pain &amp; Gain June 2017 quarter report – www.corelogic.com.au/paingain (a national profit and loss analysis of property resales over the June 2017 quarter) showed that 89.8% of dwellings which resold over the period did so for more than their purchase price; a 0.3% increase from the March 2017 quarter result of 89.5%. Of the property types to resell over the period, houses scored top billing with profit gains of 92.1%, while unit resales achieved an 87.5% gain.
Owner occupiers were the biggest winners in the property resale stakes with overall profits estimated at 92.3%. Investors resales earned significantly less and recorded 88.1%; Sydney was the only major region of the country in where investors were more likely to resell at a profit than owner occupiers.
Across the combined capital cities, a significant gap in the proportion of profit-making resales was recorded by owner occupiers and investors in a number of cities; 93.7% of owner occupiers and 90.3% of investors resold their properties for a profit over the June 2017 quarter.
<h3>Proportion of total resales at a loss/gain, houses vs. units, Jun 2017 quarter  </h3>
<img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-06-painandgain.png" alt="2017-10-06--painandgain" width="570" height="404">
  CoreLogic research analyst Cameron Kusher said, “Investors were 4.8 times as likely to resell at a loss as owner occupiers in Melbourne, in Brisbane the figure was 2.8 times and in Canberra the figure was 3.5 times.” 
Regional area resales also enjoyed a win. For the combined regional markets, 90.0% of owner occupiers and 83.7% of investors resold their properties for a profit over the June 2017 quarter.  A greater proportion of owner occupiers continued to resell at a profit over investors. However, the same extreme differences between the vendor types as seen across some of the capital cities was not seen in regional markets.    Mr Kusher said, “For owner occupiers, the results show the benefits of selling in a buoyant market.  In a falling market, owner occupiers may be more prepared to sell at a loss if they are purchasing their next home at an equivalent or greater discount.  Because of taxation rules, investors may be more prepared to incur a loss because they, unlike owner occupiers, can offset those loses against future capital gains.”   
“Should home values fall in the future, investors, which have been increasingly active in the housing market, may be more inclined to sell at a loss and offset those losses which in turn could result in much more supply becoming available for purchase at a time in which demand for housing falls because values are declining.”  
Regions showing low profit-making resales continue to be headed by those linked closest to the mining and resources sector.      Mr Kusher said “While the June 2017 quarter results show a reduction in the proportion of profit-making sales in some of these regions, home owners seem willing to sell but there remains little demand to purchase in these regions which is resulting in a high proportion of vendors materialising losses. The regions with the lowest proportion of resales at a loss makes for interesting reading.      “The Sydney and Melbourne housing markets have been powerhouses over recent years however, regions outside but adjacent to Sydney are seeing a lower proportion of resales at a loss.  Similarly in Victoria, Melbourne continues to see relatively few resales at a loss however, the proportion of loss-making resales is actually lower in both Geelong and Bendigo.”
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Property resale winners outstrip the losers

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Over the second quarter of 2018, there were $4.5 million worth of resales at a loss for Canberra.
That accounted for 1% of the total value of losses nationally, according to the latest CoreLogic Pain and Gain report.
The market also recorded $248.3 million in realised profits which accounted for 1.6% of profits nationally.
Most of the losses were apartments.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20CAN%202.JPG" alt="">
An example of some apartments which weren't quite loss makers, but barely budged were 37/3-5 Burbury Close Barton, ACT which gained $5,000 rising from $605,000 in 2010 to $610,000 during the June quarter.
At 61/30-32 Blackall Street Barton, ACT, the one bedroom, one bathroom apartment made just $100, a leap from $420,900 to $421,000 over the past five years.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/9/24/Bunda%20bunda.jpg" alt="">
An apartment in the ACT that did make a outright loss is 512/240 Bunda Street City, ACT (pictured above).
The apartment sold for $445,000 in April this year making a loss of $17,900 on its last sale price of $462,900 in 2011.
It is the largest one bedroom apartment in the Manhattan on the Park development.
Over the quarter, the share of houses resold at a loss fell slightly while the share of unit resales at a loss rose, CoreLogic noted.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20CAN%201.JPG" alt="">
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Canberra house resale profits ticks up: CoreLogic

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Over the June 2018 quarter, resales of residential properties in Perth created $876 million worth of resale profits which accounted for 5.6% of resale profits nationally, according to the latest Pain and Gain report from CoreLogic.
The report noted, Perth also created $109.8 million in loss making resales accounting for 23.4% of all losses nationally.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20PERTH%201.JPG" alt="">
The regions of the city with the fewest resales at a loss over the quarter were: Cottesloe, Fremantle and Bassendean, while the highest share of resale losses were in Peppermint Grove (based on only one sale), Perth and Kwinana.
Perth has continued to see values fall over the quarter and subsequently resale losses have also risen.
<a href="https://www.propertyobserver.com.au/images/2018/9/18/CL%20PG%20PERTH%202.JPG" target="_blank">Click here to enlarge</a>
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20PERTH%202.JPG" alt="">
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Perth accounts for almost a quarter of all losses among Australian sellers: CoreLogic

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During the second quarter of 2018, resales of Adelaide properties generated $471.9 million in profits and $17.9 million in losses, according to the latest CoreLogic Pain and Gain report .
The report noted, these resales accounted for 3.0% of total resale profits nationally and 3.8% of resale losses.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20ADL%201.JPG" alt="">
The regions with the lowest share of resale losses over the quarter were Norwood Payneham and St Peters, West Torrens and Unley while the greatest share of resale losses occurred in Playford, Gawler and Adelaide.
Adelaide is continuing to see only moderate increases in values however, like most other capital cities, the share of resales at a loss has increased over the quarter.
<a href="https://www.propertyobserver.com.au/images/2018/9/18/CL%20PG%20ADL%202.JPG" target="_blank">Click here to enlarge</a>
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20ADL%202.JPG" alt="">
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Playford, Gawler and Adelaide hit by resale losses: CoreLogic

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Based on resales across Greater Brisbane over the second quarter of 2018, the total value of resales at a profit was $1.1 billion.
Meanwhile, the total value of resales at a loss was recorded at $27.1 million, according to the latest CoreLogic Pain and Gain report.
The report noted, Brisbane generated 5.8% of the total value of resale profits nationally over the quarter and 6.8% of the losses.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20BRIS%201.JPG" alt="">
Throughout south-east Queensland, the council regions with the lowest proportion of resales at a loss were Sunshine Coast, Redland and Moreton Bay while the highest proportion of resales at a loss occurred in Ipswich, Somerset and Toowoomba.
The divergence between houses and units for loss making sales is likely attributable to higher supply levels across key areas of the inner city and the subsequent falling unit values.
<a href="https://www.propertyobserver.com.au/images/2018/9/18/CL%20PG%20BRIS%202.JPG" target="_blank">Click here to enlarge</a>
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20BRIS%202.JPG" alt="">
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Sunshine Coast records South East Queenland's lowest proportion of resale losses: CoreLogic

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Hobart resales of properties over the June 2018 quarter generated $134.3 million in profits and $1.595 million in losses, according to the latest CoreLogic Pain and Gain report.
The report noted that, based on these figures Hobart accounted for 0.9% of profits nationally over the quarter and 0.3% of losses.
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20HOB%201.JPG" alt="">
Value growth has slowed over the quarter and as a result the share of resales at a loss has increased.
Kingborough, Brighton and Sorell had the fewest resales at a loss while Derwent Valley, Glenorchy and Hobart had the highest share of resales at a loss.
<a href="https://www.propertyobserver.com.au/images/2018/9/18/CL%20PG%20HOB%202.JPG" target="_blank">Click here to enlarge</a>
<img src="https://www.urban.com.au/images/2018/9/18/CL%20PG%20HOB%202.JPG" alt="">
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Kingborough, Brighton and Sorell return Hobart's most profitable resales: CoreLogic Pain & Gain

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Some 7.6 per cent of resales saw a nominal loss across Sydney, according to CoreLogic's Pain and Gain Report March Quarter 2020. 
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Alongside Hobart, Sydney was the only capital city to see a decline in 95 per cent the portion of loss making sales, down from 7.9 per cent in the previous quarter.  
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Source: CoreLogic Pain and Gain March Quarter 2020 report.
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Across the council regions of Sydney, the highest portion of loss making sales were across Burwood (22.4 per cent), Parramatta (15.9 per cent), and Ryde and Strathfield (13.5 per cent). The Burwood council region had a high portion of loss marking sales off a 75 per cent relatively low base. There were about 18 loss making sales observed across the region, most of them units with a relatively low hold period.
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Higher levels of profitability tended to concentrate in higher socio-economic areas of Sydney, such as North Sydney, where profit making transactions made up 98.0 per cent of resales in the quarter.
The Blue Mountains also proved to be the second most profitable region for property sales in the March quarter, with 96.9 per cent of sales seeing an increase in the nominal sale price. However, the gain in the region was relatively low, at $287,250.
Increased profitability in resales was aided by a strong uplift in dwelling values over the quarter. March saw Sydney dwelling values increase 3.9 per cent. Importantly, the decline in demand resulting from responses to the pandemic has since seen values fall - 0.8 per cent over June, which will likely manifest in more loss making sales in the coming months.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/7/10/16_Sydney%202.jpg" alt="" width="710" height="504">
Source: CoreLogic Pain and Gain March Quarter 2020 report.
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7.6% of Sydney resales saw a loss: CoreLogic Pain & Gain

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Over the March quarter, Adelaide saw an increase in the portion of loss-making resales, with 10 per cent of properties seeing a nominal decline in the sale price, according to CoreLogic's Pain and Gain March Quarter 2020 report. 
This is a reversal of the trend seen in the December quarter, where loss- making sales had seen a consistent decline since September 2019.
Despite the increase in loss making sales, there were still pockets of the Greater Adelaide region where over 90.0 per cent of properties yielded a nominal gain. These include Tea Tree Gully, where 95.1 per cent of properties saw a profit, based on a typical hold period of 11.2 years. The median gain in the area was about $116,000.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/7/10/19_Adelaide%201.jpg" alt="" width="550" height="362">
 
Source: CoreLogic Pain and Gain March Quarter 2020 report.
The lowest portion of profit making sales across Adelaide was in the City of Adelaide. 22.8 per cent of sales in the quarter saw a decline in the resale price, based on a median hold period of 9.0 years, and typical losses were $30,000.
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The Adelaide dwelling market faces some headwinds in terms of persistently high levels of unemployment, which has only been worsened by the onset of social distancing measures in response to COVID-19. As of May 2020, South Australia continued to see the highest rate of unemployment of the states and territories, at 7.2 per cent.
Low interest rates and strong rental yields across the Adelaide dwelling market have continued to support growth in the Adelaide property market, which was up 0.7 per cent in the June quarter, but momentum in the growth rate has been slowing over time. The incidence of profitability in resales is likely to slip further over the coming months, until the lifting of social distancing measures sees a material improvement in the labour market.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/7/10/19_Adelaide%202.jpg" alt="" width="826" height="398">
Source: CoreLogic Pain and Gain March Quarter 2020 report.
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