The property market big winners and losers | Tim Lawless [Podcast]


CoreLogic has released its Pain and Gain Property Report which measures the profits and losses of property sellers and while some have made losses, there have been some spectacular gains over the last year.  

A key highlight emanating from the report is that around one third of homes resell for more than double their previous purchase price, but it’s not all good news.

In a recent Real Estate Talk show Tim Lawless discussed the findings of the report.


(Alternatively you can listen to the short podcast at the top)


Kevin:  Let’s take a look at where some of the property gains were first and then we’ll look at the losses and how big they were.

Where were they made? Tim Lawless NEW 2015

Tim:  If you look geographically, we’re still seeing Sydney absolutely heads and tails above most of the capital cities for the proportion of properties that are selling at a profit.

What we’re seeing in Sydney is only about 2% of homes are selling at a loss, so 98% of all homes that resold in the March quarter in the Sydney property market have done so at a gross profit.

So clearly, the very strong capital gains we’ve seen in Sydney since 2012 have created a great deal of equity in that housing market for those existing property owners.

Kevin:  When I mentioned that around a third of homes resold at more than double their previous purchase price, would it be fair to say that the vast majority of those would be in Sydney?

Tim:  Absolutely, the majority are in Sydney, and then secondly in Melbourne.

So we’re seeing those two cities – no surprise – that’s where the strongest capital gains have been, but we are seeing profit-making sales across all regions, even some of the weakest markets like Perth or Darwin, or Hobart for that matter, which has historically been quite a weak city since 2008 but is now starting to improve.

There are people still making a lot of profit from property, but generally, you’ll find that hold periods in those areas tend to be much longer.

So people have ridden over a few cycles, and they’ve seen the benefit of that long tenure of owning their property resulting in some decent capital gains.

Kevin:  Looking at each state market, South Australia and WA are both really struggling to find their way.

Tim:  Yes, if you look at South Australia, for example, if you look at just Adelaide houses, we saw just over 5% of all resales in March were lossmaking. 

When you look at units, a little bit higher at 5.7%.

But if you look at regional South Australia, it does get up substantially higher, so we’re getting up towards 7% for lossmaking sales across regional South Australia.

We are seeing some big differences between the capital cities and the regional markets, not only in South Australia but across every region.

We are seeing the capital cities typically outperforming the regional areas.

Kevin:  What were the value of the losses?


Tim:  If you look at the gross level of capital gain that we’ve seen derived from the housing market, on average we’ve seen those people who made a profit on their properties made about $240,000 on average on each resale.

If you look at the gross value of sales across the housing market, about $12.9 billion of profit was made just over one quarter.

So a lot of money being made from housing, and of course, going back to the taxation debate, a lot of capital gains tax being paid here, as well.

Kevin:  What was the average loss? 43460083_l

Have you been able to work that out, and how big was that?

Tim:  Across all those properties that sold at a loss, the average level of loss was $66,000.

Compare that to an average profit of $240,000, and the level of loss being made out of property is substantially smaller.

Kevin:  How does it compare historically?

Tim:  We have seen an ongoing trend towards fewer lossmaking sales across the country, but in the March quarter, we’ve actually seen a slight uptick there, so potentially we’re seeing a little bit of a turning point here.

Throughout the entire growth cycle, we’ve been seeing the proportion of lossmaking sales getting smaller of smaller, and that reached a low point in December last year.

In the March quarter, we saw 9.2% of properties selling nationally at a loss.

That’s slightly higher than what we saw in the December quarter, so I wouldn’t be surprised if this does mark a subtle turning point in the housing market that we are seeing a larger number of loss-making sales as we start to see the growth cycle winding down.

Kevin:  Were you able to have a look at those properties that actually did lose money?

Were they held for a shorter period of time than those that created a profit?

Tim:  Yes, absolutely.

One of the really interesting things here is analyzing the hold periods or the length of tenure across typical property types and also across profit- and loss-making sales.

For those properties that were selling at a loss, we’re generally seeing them sold within, say, five or six years, whereas those properties that are being sold for profit are generally held for about ten years.

You do find that time does tend to heal all wounds – that the longer you hold a property, the higher propensity you have of making a profit out of it.

Those people who doubled their money were typically a hold period of 15+ years, so that old magic rule of thumb that every ten years, you should double the value of your property doesn’t really hold a great deal of water anymore.

The typical hold period for doubling your property was just over 15 years.

Kevin:  Okay, so we’ve seen that blow out, as well. australia house property map real estate aus state country

Just looking at some of these individual results, looking through the report now, the unit market, particularly in regional WA and also regional Northern Territory, you’re almost looking at a 50-50 split between those who made a profit and those who made a loss, really.

Tim:  That’s right, and we’re really seeing this trend across the mining states.

Some of the mining regions around WA – think of the Pilbara, Port Hedland, Karratha, Newman, those sort of markets – we’re seeing a very high proportion of loss-making sales.

The same sort of trend also in the areas west of Mackay, for example, which are more coal mining.

Just look at areas like Fitzroy, the Moranbah, Emerald, those sort of markets also getting close to 50% of all resales were loss-making.

One positive thing to say about those markets is we are now starting to see the trend of loss-making sales moving a little bit lower.

Previously, loss-making sales were a little bit higher than what we’re seeing over the March quarter, so we might be seeing these regional mining towns potentially moving through the worst of conditions, as we see these areas hit rock bottom and hopefully start to show some upwards pressure over a long period of time.

But there’s no sign of any upwards pressure in those markets just yet.

Kevin:  And if you look nationally, around about 8% of all houses showed a loss when they sold, which means that 92% actually had a gain on selling, which is a pretty healthy market, isn’t it?

Tim:  Yes, absolutely.

It still shows that the vast majority of people selling a home in Australia are making a profit out of it, keeping in mind these are gross profits reporting here, so we’re not taking into account purchasing or selling costs or interest payments or anything like that.

These are gross figures, so if you work it out as a net figure, obviously it’s going to be lower than that for the proportion of profit-making sales.

But pointing out those figures, there’s such a big difference between houses in units. 13533766_l

About 8% nationally sold at a loss for houses; nearly 12.5% for units were loss-making.

Kevin:  It makes the point about property ownership, whether it’s for an investment or whether it’s owner-occupied, you’ve really now got to start looking at it as a long term investment, especially if those hold periods are blowing out to 15 years I think you said, for a property to double in value?

Tim:  That’s exactly right, and we do split the numbers out by owner-occupiers versus investors, and it does show that investors are more likely to show a loss on their resale nationally.

It was 8% owner-occupied properties sold at a loss compared to nearly 12% for investment, which probably comes back to the tax effectiveness of writing off a poorly performing property.

You can write off that loss against future capital gains, which you obviously can’t do as an owner-occupied property.

Kevin:  And of course, that Sydney market, every time we talk, it continually astounds me.

It just doesn’t seem to be slowing down at all, does it?

Tim:  It has slowed down a little bit, but we were seeing values growing in July last year at nearly 19% per annum, and that growth rate for a while was tracking at around 8% per annum, so it more than halved.

But just recently, we’ve been seeing some very strong indicators across the Sydney market showing a bit of a rebound.

We’ve seen a few months now where growth is going back above the 1% mark month on month, we’ve been seeing auction clearance rates getting closer to the 80% mark again week on week, as well, so still very strong conditions across Sydney, which incidentally is also the most unaffordable market.

We just released some affordability figures showing the average house price-to-income ratio, and Sydney is getting close to ten times now.

Kevin: Isn’t it amazing that we talk about the Sydney market and we say “Oh, it’s slowing down a little bit; the growth in there now is only around 8%, 9%, or even 10%.”

A lot of markets would kill for that kind of growth. 52041438_l

Tim:  Absolutely.

If you compare Sydney, say, back to Brisbane, where Brisbane’s values are growing at about 6% per annum, and Brisbane doesn’t get anywhere near the level of attention that Sydney does, even at 6%, Brisbane’s annual rate of growth is very strong.

It’s substantially higher than what household income growth is, and at a 6% rate per annum, it’s much more sustainable than what Sydney’s has been and suggests that Brisbane probably still has some way to go before we start to see the cycle peaking out.

Kevin:  Always great talking to you.

Tim Lawless from CoreLogic RP Data.

Thank you very much for your valuable time, Tim.

Tim:  Thanks, Kevin.

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