What Aussie suburbs are performing well?

Property delivered a collective $14.3 billion in gross profits to sellers over the March quarter alone. That is an incredible amount of wealth generated by plenty of mum and dad property owners across Australia, according to the latest Pain and Gain Report from CoreLogic.

Capital growth is the biggest benefit of property ownership and in many cases, the average income earner will earn more from their properties over the long term than they do working in their jobs (if they buy a good property in a good location and hold it for the long term).

The report shows 87.9% of all sales in March were profitable (ie the selling price was higher than the purchase price). It’s that high because property is a very reliable and safe asset class and most people come out of it well.

However, sales at a loss do happen and of course, they happen more frequently after a boom because people can pay too much, then panic as prices fall; and they sell sooner than they should.

So, although 87.9% is impressive, it’s actually the lowest proportion of profit-making sales since March 2013. This reflects the fluctuating market we’ve seen over the past two years across the country, with prices either falling or price growth softening pretty much everywhere due to this.

When the going gets tough, owners have to hold on. There is a big difference between buying a dud property and having to cut your losses due to bad judgement – which can sometimes be the best call; and buying a good property but selling too soon because the market slows and nerves set in.

This is a key message for investors, as they’re the ones more likely to sell at a loss, according to the report. This happens because investors have no emotional connection to the property, so it’s easier to panic when the market fluctuates. Plus, they can claim capital losses against other capital gains.

It’s different for home owners. They’ve made the property their own and they’re typically planning to be there for the long haul, so a few bad years at the bottom of the cycle is no big deal because they know the market will come back again, like always.

In March, just 10.5% of owner-occupied properties nationwide re-sold at a loss compared to 16.7% of investment properties.

Houses that re-sold at a loss were held for a median 6.1 years, compared to houses that sold for a profit which were held for a median 9.8 years. Apartments re-sold at a loss were typically held for 6.3 years and those that sold for a profit were held for 8.7 years.

Holding your property for the long term is the key to capital gains.

With apartments, there is an additional factor that creates greater risk of a re-sale at a loss and that’s oversupply. Now and then, markets get oversupplied for a variety of reasons, such as re-zoning or a building boom that typically always runs a year or two behind a general market boom.

The gap between profitable re-sales of houses and apartments is wide. Nationally, 90.5% of houses re-sold for a profit in March compared to 79.5% of apartments – down from 85.4% a year ago and the lowest share of profitable apartment re-sales in 20 years.

Contributing to this – no doubt, are investors who bought close to the peak in oversupplied markets and are now struggling to secure a tenant while watching the price of their investment fall.

In March, the greatest proportion of all re-sales at a loss were in areas with a lot of new apartment stock. On the East Coast, those areas included Strathfield, Parramatta, Ryde and Lane Cove in Sydney; and central Melbourne CBD and Brisbane CBD where there has been a lot of development.

If you can find a way to hang on, you’ll most likely come out of an oversupply just fine in the long run. Population growth will carry your property’s value forward but you need to wait it out. Given the high entry and exit costs of property, you’re usually better off just hanging in there.

The following list shows which suburbs had the highest percentage of re-sales at a profit in each capital city and the median profit those owners achieved.

Top selling suburbs (Highest percentage of profitable re-sales)  

Sydney

Woollahra (96.3% profitable re-sales; median profit $640,000)

Blue Mountains (96.3% profitable re-sales; median profit $283,000)

Hawkesbury (95.7% profitable re-sales; median profit $328,000)

Melbourne

Macedon Ranges (100% profitable re-sales; median profit $430,000)

Banyule (99.5% profitable re-sales; median profit $360,000)

Casey (99.2% profitable re-sales; median profit $300,100)

Brisbane

Scenic Rim (95% profitable re-sales; median profit of $148,100)

Ipswich (92.2% profitable re-sales; median profit $122,000)

Redland (91.9% profitable re-sales; median profit $130,000)

Canberra

Unincorporated ACT (54.4% profitable re-sales; median profit $176,750)

Adelaide

Tea Tree Gully (97.3% profitable re-sales; median profit $99,750)

Unley (95.9% profitable re-sales; median profit $229,250)

Mallala (95.8% profitable re-sales; median profit $153,500)

Perth

Peppermint Grove (100% profitable re-sales; median profit $776,250)

Nedlands (85% profitable re-sales; median profit $508,500)

Murray (81.3% profitable re-sales; median profit $149,000)

Darwin

Litchfield (64% profitable re-sales; median profit $361,375)

Darwin (54.4% profitable re-sales; median profit $115,500)

Palmerston (51.6% profitable re-sales; median profit $220,750)

Hobart

Brighton (100% profitable re-sales; median profit $126,500)

Derwent Valley (100% profitable re-sales; median profit of $74,000)

Glenorchy (98.9% profitable re-sales; median profit $159,250)

Source: Pain and Gain, March Quarter 2019, CoreLogic, published July 2019

Regional Markets:

The regional markets that had the highest percentage of profitable re-sales were:

Geelong in VIC (98.9%),

Newcastle/Lake Macquarie in NSW (97.1%),

NSW Mid-North Coast (96.3%),

Sunshine Coast in QLD (95.4%),

Richmond-Tweed in NSW (94.6%) and

The Illawarra (93.3%).

Published: Tuesday, July 30, 2019