Selling Your House in Australia Increase in Loss-Making Sales

Introduction

Recent data from CoreLogic, a leading property data group, reveals that properties sold at a loss in Australia have increased in the March quarter. Approximately one in six units were offloaded for less than what the owners initially paid. This trend can be attributed to the rising cost of servicing debts, prompting owners to sell their properties at a loss. Additionally, the national proportion of resales with a nominal profit has declined to 92.3% in the January-March period, marking the third consecutive quarter of declines.

Decrease in Profitability

The data collected from approximately 76,000 resold houses and units indicates a decline in profitability. These properties collectively garnered a profit of $22.7 billion in dollar terms, without adjusting for inflation. However, this profit is significantly lower than the almost $40 billion generated in the final three months of 2021. The decline in profitability is more pronounced for unit sales, with 15.4% of transactions in the March quarter resulting in a price lower than the initial purchase price. This percentage is higher than the 13.8% recorded in the previous three months. Consequently, there is now a record gap between the profitability of houses and units.

Factors Contributing to Losses in Unit Resales

CoreLogic suggests that the higher concentration of investment ownership in the unit sector could be a contributing factor to the increase in loss-making unit resales. The greater concentration of loss can be attributed to the increase in servicing investment mortgages.

Eliza Owen, CoreLogic’s head of research and author of the report, acknowledges that average gains remain substantial overall. However, she notes that the level of profitability has deteriorated in the past quarter, despite the rate of price falls slowing down. Owen speculates that this deterioration could be linked to more short-term selling, which is unusual during a period of price stabilization.

Impact of Rising Interest Rates

The Reserve Bank of Australia has increased its official interest rate multiple times since May 2022. Economists predict that there will be at least one, if not two, more rate rises before the cycle ends. As a result, property data groups such as Domain have reported an increase in apparent forced sales in the outer suburbs of Sydney. This trend is expected to spread to other regions as the impact of past rate increases and potential future ones take effect.

Shorter Holding Periods and Loss-Making Sales

CoreLogic highlights that the portion of resales of properties held for less than two years has increased significantly. In the March quarter of 2022, these short-selling times accounted for 3.4% of resales, but this figure rose to 12.4% in the same quarter of 2023. Typically, hold periods increase during housing value downturns as sellers try to avoid making a loss. Therefore, this increase in short-selling times with sellers incurring a loss is considered unusual.

Regional Variances

Among the major cities in Australia, Sydney, Melbourne, Perth, and Darwin experienced increases in the rate of loss-making sales. In Sydney, just over one in ten sales (10.7%) resulted in a loss in the March quarter, which is the highest proportion since the three months to August 2009. Melbourne did not fare much better, with 10.2% of resales incurring a loss.

On the other hand, sales in Hobart had the highest proportion of nominal profits, with 99% of resales generating a profit. Canberra and Adelaide followed closely behind, with 98.1% of resales in the black.

Conclusion

The increase in loss-making sales and the decline in profitability for properties in Australia’s real estate market highlight the challenges faced by property owners. Factors such as rising interest rates and the higher concentration of investment ownership in the unit sector contribute to this trend. As the market continues to evolve, property owners need to carefully consider their options and strategies to ensure a successful and profitable sale of their properties.