While there will always be rumblings about residential real estate being a ‘risky’ investment proposition due to a never ending litany of alarmist news reports, the fact remains that well selected property assets are still reaping impressive returns.
Runaway house prices in Sydney and Melbourne over the last few years convinced many that bricks and mortar can make for a booming investment business. And now, the latest resale figures from CoreLogic are demonstrating just how financially rewarding a property portfolio can be.
More gain than pain
According to CoreLogic’s Pain & Gain June 2017 quarter report, combined resale figures from property transacted over the period earned sellers $18.2 billion in gross profits, with the median return on investment recorded at a compelling $195,000. At the same time, gross resale losses totalled $469.6 million, with a median loss of $35,000.
As you can imagine, homeowners selling up in Sydney enjoyed the most substantial gains, with 98.1 per cent of all house resales in the Harbour City recording a profit, and 98.4 per cent of apartments.
Meanwhile in Melbourne, 98.9 per cent of detached dwelling resales recorded a gain, whereas the apartment market didn’t do quite so well, with close to 10 per cent selling at a loss.
Interestingly, owner-occupiers enjoyed better resale results than property investors overall, raking in 92.3 per cent of overall resale profits compared to 88.1 per cent for investors, with Sydney being the only major market where investors were more likely to resell at a profit than their OO counterparts.
CoreLogic research analyst Cameron Kusher said, “Investors were 4.8 times as likely to resell at a loss as owner occupiers in Melbourne, in Brisbane the figure was 2.8 times and in Canberra the figure was 3.5 times.
“For owner occupiers, the results show the benefits of selling in a buoyant market. In a falling market, owner-occupiers may be more prepared to sell at a loss if they are purchasing their next home at an equivalent or greater discount. Because of taxation rules, investors may be more prepared to incur a loss because they, unlike owner occupiers, can offset those loses against future capital gains.”
He also notes that should home values fall in the future, investors may be more inclined to sell at a loss and offset those losses, “which in turn could result in much more supply becoming available for purchase at a time in which demand for housing falls because values are declining.”
Not all good news
Of course as with any type of property data snapshot, it wasn’t all roses for every state when it came to resale gains.
In Perth for instance, where the housing markets have been under extreme pressure since the decline in Australia’s resources boom, 48.8 per cent of houses sold five years after purchase came in at a loss, and 69.3 per cent of apartments. Likewise for Darwin, where the loss in house and apartment resales were recorded at 58.5 per cent and 54.2 per cent respectively.
Then there’s been the overall slowdown of late, albeit off the back of a strong growth phase led largely by Melbourne and Sydney due to high rates of population growth and increased investor demand in these two housing market hotspots.
Incessant investor and buyer demand has also caused prices to weaken somewhat in a roundabout way, as builders seeking to cash in on the property boom have sent new apartment construction through the roof, thereby increasing supply significantly in some neighbourhoods.
The take home message for investors is that property can indeed pay big dividends when it comes to capital gains, even over a shorter, five year holding period.
The key is in undertaking thorough due diligence when it comes to the long-term fundamentals and drivers of any given market.
Always ensure there’s ongoing opportunity for demand to exceed supply – number one rule. As we’ve recently witnessed in the likes of WA and the NT, it’s often about diversity of industry and employment opportunities when it comes to the demand side of the equation.
Historically speaking, these recent CoreLogic figures reflect what those of us who’ve been in the industry for many years now are well aware of. Real estate has the capacity to be a very stable and rewarding cash cow. Take a calculated approach to your investment endeavours and it really is hard to lose in this game.