The Australian locations where homeowners are selling at a loss

Loss-making resales of homes and investment properties held for less than three years are on the rise, indicating more stress in the marketplace amid high interest rates and the cost-of-living crisis. CoreLogic data shows that of the 86,000 resales during the third quarter of 2023, 6.6 percent were sold at a loss after less than three years of ownership. This is up from 3.6 percent in the September quarter of 2022 and represents a 10-year high, according to CoreLogic’s head of research, Eliza Owen.

Properties held for three years or less represented one in five of all loss-making resales, according to the report. These types of sales were seen in many markets across the country. However, the areas recording the highest portion of these sales were Melbourne–Inner at 4.1 percent, Melbourne–West at 3.7 percent and Sydney’s Central Coast at 3.6 percent. The median loss for these resales was $30,000.

Most of the loss-making resales among properties held for less than three years were houses, at 64.8 percent. Ms Owen said this was quite a different trend to all loss-making resales across all tenure periods. On that broader basis, more of the overall loss-making resales were apartments at 70.9 percent.

It is a commonly held view among property experts that real estate must be held over the long term to achieve strong capital growth. This is partly because property prices typically move in cycles that can take several years to complete. Property is also an asset class that involves high entry and exit costs such as stamp duty, legal fees, marketing costs and agents’ commissions. This makes selling after only short periods of ownership undesirable, indicating that those who are choosing to do this are likely to be experiencing financial stress.

During the second half of 2023, thousands of mortgages rolled over from fixed periods of two or three years at interest rates below 2 percent or 3 percent to variable rates of above 5 percent or 6 percent. Some of these sales may reflect the ‘mortgage cliff’ effect of this change. Looking ahead, Ms Owen pointed out that the Reserve Bank of Australia is forecasting unemployment to rise to 4.2% by the end of 2024 and “this will test serviceability, and may lead to an increase in motivated selling for mortgagors with high debt levels and low savings buffers”.

Ms Owen also emphasises that short-term loss-making resales make up only a small portion of the Australian housing market and this was not expected to change. “This is ultimately a small share of mortgagors, so the portion of short–term resales is not expected to grow substantially from where it is now. Ongoing increases in home values nationally should contain the rate of loss-making short–term resales, though capital growth conditions were looking weaker across Sydney and Melbourne to the end of [2023],” she said.

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

The Australian locations where homeowners are selling at a loss

The portion of properties sold at a loss within three years of ownership has almost doubled in one year

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.