Pain On the Way: Apartment resale losses starting to creep up, CoreLogic says

Australian Financial Review Jun 26 2017 6:18 PM

Su-Lin Tan

The number of loss-making apartments in Sydney and Melbourne has started to creep up while loss-making transactions in mining areas have dwindled, CoreLogic's Pain and Gain report for the March quarter shows.

Loss-making apartment sales have increased in Inner city Melbourne, Sydney's inner city and west, the Northern Beaches, and Gold Coast.

In contrast, loss-making apartment transactions in Perth, Darwin and parts of Adelaide have shrunk.

The proportion of capital city units reselling at a loss is hovering around its highest level since early 2013 when the east coast residential boom started, the report says.

"In Melbourne, units were 6.5 times more likely to be resold at a loss than houses, in Brisbane units were 6.4 times more likely to be sold at a loss than houses and in the ACT units were 14.5 times more likely to be resold at a loss than houses," the report says.

"Investors were more likely to incur a loss on the resale of their property than owner-occupiers."

Over the quarter, 7.1 per cent of owner-occupiers resold their home at a loss compared to 12 per cent of investors.

Those same splits were reflected in capital cities – 5.3 per cent of owner-occupiers resold their properties at a loss compared to 9.3 per cent of investors.

Underlying land value

"Although investors were more likely to resell at a loss than owner-occupiers in all capital cities, they were more than three and a half times more likely to do so in Melbourne and the ACT and 2.5 times more likely to resell at a loss in Brisbane," the report says.

Since 1997 there has never been a quarter in which there was a higher proportion of houses reselling at a loss than units because houses tend to be more valuable due to underlying land.

In the regions, areas making losses are those linked to the mining and resources sectors.

"While the proportion of loss-making sales has started to reduce in some of these regions, there remains a high willingness from home owners to sell but little demand to purchase, which is resulting in a high proportion of vendors materialising losses," the report says.

Nationally 9.6 per cent of all dwellings sold for less than their previous purchase price over the first quarter of 2017, higher than the last quarter's rate of 8.8 per cent. That said, it was still a small number compared to gains made by home sellers.

In total, $493.8 million was lost in sales of properties in the March 2017 quarter, with the median loss recorded at $35,000 while vendors realised $20.9 billion in gross profit over the quarter with the median profit at $185,000.