Growing number of Qld properties bought without mortgage

A new report released by digital property exchange PEXA has revealed that cash purchases made a significant contribution to the residential property market in the calendar year 2023.

The PEXA Cash Purchases Report for 2023 looked at the volume of cash purchases in Australia’s three eastern states (NSW, Victoria, and Queensland) based on a percentage of overall residential sale settlement volumes in 2023.

It found that overall 28.5 per cent of all residential properties purchased across Australia’s three largest states were funded entirely with cash in 2023, up from 25.6 per cent in 2022.

The total value of cash transactions last year came to $129.6 billion, up from $127.7 billion.

When looking at the aggregate value of cash purchases:

• NSW cash purchases grew by 4.0 per cent when compared to 2022, to $54.9 billion (27.7 per cent of total residential purchases).
• Queensland rose 2.3 per cent, to $39.4 billion (25.2 per cent of total residential purchases).
• Victoria dropped from $36.4 billion to $35.3 billion (25.2 per cent of total residential purchases).

Unlike those buying with a mortgage, cash buyers were found to be typically older home owners/retirees with lower income flows, fewer dependents, and ‘asset rich’.

These buyers may not require a home loan, but have accumulated property, savings, and superannuation to fund their next purchase.

PEXA’s report also found that the growing cash buyer market is dominated by two groups: regional buyers – who contributed to the largest proportion of residential cash buyers; and inner-city urban buyers – who made up the largest share of cash purchases by value and volume due to greater transaction volumes and higher priced properties in inner-city locations.

Qld leading the way for cash purchases

According to the report, Queensland recorded the largest number of cash purchases last year – making up 29.6 per cent of overall residential purchases in Queensland.

With 52,177 cash purchases, the state outpaced the number of cash purchases recorded in NSW (46,339) and Victoria (41,485). However, the figure was 4.4 per cent lower than the 2022 figures.

Part of the reason that more buyers purchased a property in Queensland than in the other eastern seaboard states is the state’s lower property prices, according to PEXA.

Speaking to Mortgage Business, Julie Toth, PEXA’s chief economist, noted that the median value of cash purchases in Queensland rose 9.6 per cent in 2023, to $570,000.

In Victoria, the median value of cash purchases was $604,500 and in NSW was $770,000.

She said: “The sea change, tree change group is definitely still quite active and we are still seeing people moving into the regions. If they’re downsizing from a city property to a cheaper one in the regional areas that helps explain some of this flow.”

Regional areas across Queensland saw the highest proportions of cash purchases in 2023, with a total of 33,055 residential properties purchased without a mortgage in these locations.

“If you have a look at the postcodes that show up in terms of the strongest by value, Queensland is top of the list. Surfers Paradise was top in terms of the value of cash transactions [totalling $1.43 billion],” Toth said.

Indeed, the PEXA report revealed that there were 1,232 cash purchases in the 4217 postcode in 2023.

However, Melbourne’s CBD (postcode 3000) had the largest number of cash purchase transactions last year, with half of the total spend on residential property (1,697 transactions) being attributed to cash purchases. The median cash value was $603,500.

The value of cash purchases in inner Melbourne also nearly doubled over the year, to $1.32 billion.

Filled with high-rise apartments, PEXA noted that the CBD area was attractive to domestic and international investors, given the three-quarters of the dwellings occupied by young renters.

Toth added that there had also been “a fair bit of movement” in the volume of cash purchases for the more expensive suburbs in Melbourne and Sydney (for example, Mosman in Sydney or Toorak in Melbourne), where more affluent families were buying a property without a mortgage.

The median cash value of the 223 cash purchases in Mosman in 2023 was $2.9 million last year, while the 159 transactions in Toorak had a median value of $2.3 million.

PEXA went on to state that the findings highlighted the limitations of monetary policy to control inflation, as cash buyers made up more than one-quarter of property purchases in CY23, with rate rises having little impact on this cohort’s ability to purchase property.

It noted that the demographic profile of cash buyers was different to mortgaged buyers, with the data showing cash buyers tending to be older.

This suggests that rising interest rates “disproportionately target younger mortgage holders increasing the intergenerational wealth gap”.

Toth said: “Cash buyers are changing the dynamics of the residential property market and exerting a greater influence on overall property demand. The relatively large size of this group helps to explain the property market’s resilience in 2023, despite rapid rises in interest rates.

“While rising interest rates have contributed to cost-of-living impacts across most types of households, the growth of this cash buyer cohort – at over a quarter of all residential property buyers across the eastern states – suggests the rate rises of the past year have not affected the ability of these buyers to purchase property to the same extent as buyers who require a mortgage.

“This could be exacerbating the existing intergenerational wealth divide when it comes to housing affordability.”

Toth concluded that while cash purchases have ticked up on last year, the majority of home buyers still require a mortgage.

“The majority of purchasers do still require finance, and even within this group of cash buyers – although people may not require a full mortgage on the property that they’re purchasing – they most all require assistance, for example, through the transition period with financing the move,” she said.

[Related: Home buyer confidence up as prices climb: REA Group]