Little pain, lots of gain
INVESTING in Melbourne real estate is as safe as houses, a new CoreLogic RP Data report has confirmed.
The latest Pain and Gain report found just 4.2 per cent of Melbourne home resales during the December 2015 quarter sold at a loss.
CoreLogic analysis showed a combination of longer hold periods and strong capital growth helped keep the number of loss-making sales steady.
The report showed the best areas for sellers were Frankston and Williamstown, where just 1.2 per cent of sales made a loss within the council areas of Frankston and Hobsons Bay.
Meanwhile, the oversupply and poor capital growth of units and apartments in inner Melbourne was underlined with 17.2 per cent of home sales within the City of Melbourne making a loss.
CoreLogic head of research Cameron Kusher said profit and loss-making sales remained steady compared to the previous quarter, showing the market had reached an equilibrium.
STRONG GROWTH BOOSTS PROFITS
Evidence of the price ripple effect taking hold in the middle to outer eastern suburbs is shown in the low level of lossmaking sales.
From Banyule in the north to Whitehorse, Monash and Knox in the east and Kingston and Frankston in the south, each had less than 2 per cent of resales over the December quarter recording a loss.
Barry Plant chief executive Mike McCarthy said the report reinforced the ripple effect’s impact.
Mr McCarthy said prices had continued to grow since December, with the average price for the Barry Plant Group increasing 15.8 per cent over 12 months.
“It says there is still plenty of steam left in the market for those middle and outer suburbs,” he said.
UNITS DRAG INNER SUBURBS
Units are three-times as likely to sell at a loss than houses in Melbourne, as slower capital growth and an oversupply supply take hold. The median price for units in Melbourne fell 3.2 per cent last year, while similar falls were experienced in Carlton North, Docklands, North Melbourne and Parkville.
Resale losses were higher in other inner city councils. The proportion of loss-making sales was highest in Yarra, at 8 per cent, while Maribyrnong, Moonee Valley, Moreland, Port Phillip and Stonnington all had a proportion of loss-making sales above 5 per cent.
INVESTORS TAKE A HIT
Melbourne investors were almost three-times as likely to take a loss on the resale of their property, compared to owneroccupiers.
While 2.4 per cent of owner- occupier sales were lossmaking, 7.1 per cent of investors took a hit when they sold.
This was due to investment being more prevalent in unit markets, which were more prone to loss-making sales, and that investment housing could have a narrower appeal on the market than owner-occupier housing stock, the report stated.
“Investors are probably better able to take a loss than owner occupiers, so maybe some people are doing that,” Mr Kusher said.
LONG-TERM OWNERSHIP IS KEY
While properties sold at a loss were owned for an average 4.4 years, sellers that made a profit sold after an average 11.8 years.
Mr Kusher said this was more typical in outer suburbs, where capital growth was slower and there were less investors.
“Investors in the outer suburbs are not expecting to make a profit quickly and are probably more focused on rental return, whereas the investor in the inner city tends to be more focused on the capital growth and a little bit of yield, but probably not so much.’’
Mr McCarthy said longterm ownership was a key tenet of investing. “A lot of people say it’s not timing the market, it’s time in the market,” he said. “If you look back over the past 10 years, Melbourne was the only capital city to achieve doubling of prices.”