While there is much coverage about the seemingly endless and meteoric rise in real estate values, it may be a shock to some people to hear that occasionally property is sold at a loss. In fact the recent “pain vs gain” report from CoreLogic RP Data, for June quarter 2015, shows 1 in 5 (20%) of all residential sales in the Melbourne Council region were transacted at a loss. Approximately 254 people sold their property for an average loss of $28,125… and that is before costs, so the net loss number would be much higher.
The report shows the Melbourne City Council precinct tops the chart with 20% of owners selling for less than what they paid during Q2, with 2 other council regions hitting double figures being Stonnington at 12%, and Moonee Valley at 10.3%. Some other dishonourable mentions are Yarra – 9.9%, Whittlesea – 9.3% Hume – 9.0% and Port Philip – 8.8%. Across all of Melbourne 5.7% of property sold at a loss, which is less than 6.6% 12 months ago.
The other interesting analysis in this report is the average holding period for sales transacted at a loss vs a gain. For apartments only, across all Metropolitan Melbourne, the average “loss sale” was held for 5 years and the average “gain sale” was held 9.7 years. Obviously “gain sales” will be held longer than “loss sales”, but the average “loss sale” holding period of 5 years seems reasonably high. This suggests there is more to this issue than just sales where a unit is bought and sold within 1 or 2 years. We have advised previously that 5 years is an absolute minimum hold time for investment units and 10 years or more is preferable, and this report vindicates this. The report shows a large variation in the percentage of sales made at a loss vs gain in each municipality, again reinforcing our advice that some areas (and specific developments) are better buying than others.