Property profitability hit high despite lockdowns: CoreLogic

A new report from CoreLogic has shown around 92.4 per cent of home resales made a profit in the September quarter, up 50 basis points from the previous three months, despite widespread lockdowns.

There had been 99,000 dwelling resale transactions during the period, down from 106,000 resales in the June quarter. CoreLogic head of research Eliza Owen explained there had been an impact from social distancing restrictions, particularly the inability to physically inspect property in Melbourne.

She also added the profit rate had defied lockdowns across Sydney, Melbourne and the ACT.

“The increase in the rate of profit-making sales is a reflection of strong capital growth across Australian dwelling markets despite COVID-induced disruption to transaction activity,” Ms Owen said.

“The three months to September was the fifth consecutive quarter in which the rate of profit-making sales across Australia increased.”

The national median nominal gain was $270,000, with resale profits across the nation totalling $27.3 billion. At the same time, median losses came to -$37,000, or a total of -$368,000.

The combined value of profit and loss had fallen through the September quarter, but the decline in total losses was more rapid.

House resales had a higher chance of profit (95 per cent) than units (86.5 per cent), but Ms Owen reported the gap is narrowing.

“As affordability constraints limit growth in the detached house market and gradually deflect demand towards higher density housing options,” Ms Owen said.

With dwelling values showing further increases through the December quarter, the portion of profit-making sales is expected to continue rising in the coming months.

But, Ms Owen warned property prices could be pushed down by a number of factors.

“There are accumulating headwinds for property market performance in the coming months, in the form of higher supply of advertised stock, normalising interest rates, affordability constraints and the possibility of tighter lending restrictions,” she said.

“A downswing in Australian housing market values would ultimately impact the profitability of resales, particularly for recent purchasers.”

Regions recorded higher profit rate over cities

Regional Australia managed a higher rate of profit from resales compared to the capital cities, at 93.1 per cent during the September quarter.

The combined capitals had a rate of profit-making sales of 91.1 per cent.

Ms Owen tipped the regional reign is likely to continue as momentum ramped up towards the end of 2021.

Coastal and “tree change” markets had seen immense price growth over 2021, as remote work became more common through the pandemic and contributed to higher levels of migration.

“Reflecting where we’ve seen values surge the most over the COVID period to date, sea change and tree change properties proved among the most profitable over the quarter,” Ms Owen said.

Resource-based markets generally had higher levels of loss-making sales, but were showing signs of improvement.

Across the six major resource markets analysed, the total incidence of loss-making sales fell from 32.5 per cent in the June quarter, to 29.2 per cent in the three months to September.

“In addition to low interest rates expanding the available credit for housing, increased economic output has led to a sharp increase in commodity prices and mining investment activity, which has supported employment and housing demand,” Ms Owen said.

“Factors related to the pandemic exacerbated demand for housing in resource-based markets over the course of the year. These factors included restrictions on interstate travel, which in some instances converted FIFO working arrangements to resident workforces and the increased desirability of regional markets through the pandemic, which may have attracted residents who are not in the resources sector.”

Expect owners to hold on for longer

Resales had a typical hold period of 8.8 years, consistent with the previous quarter. But Ms Owen stated that as the market heads towards a peak in the next couple of years, more owners may be incentivised to hold for longer, in order to cash in on their long-term gains.

“Properties held for more than 30 years had the highest median gain of just over $745,000,” she said.

“However, the highest nominal gains per year were achieved by those on the other end of the spectrum, who have held property for two years or less. The median gain on resales of property held for less than two years was $120,000.”