Record Profits for Property Vendors Despite Decline in Windfall Gains
The latest Pain and Gain report from CoreLogic reveals that the March quarter saw a record high in profit-making residential sales, with a remarkable 94.3% of vendors selling at a profit. This is the highest level of profitability in 14 years, driven by continuous increases in home values, despite economic challenges and higher mortgage rates.
Over 80,000 vendors collectively earned $28.5 billion in gross profits, although this was a decrease from the $30.6 billion recorded in the December quarter. The median profit also fell by 1.1% to $265,000 during the same period. Eliza Owen, CoreLogic’s Head of Research, anticipates that the proportion of profit-making sales will rise further in the June quarter, in line with a 1.9% increase in home values from March to May.
Regional Highlights: Brisbane and Adelaide Lead
Brisbane and Adelaide emerged as the most lucrative cities for vendors, with 98.4% of all sales generating gross profits. Perth also showed a significant improvement, with 93.6% of sales being profitable, marking its highest profitability in over nine years. The portion of unprofitable sales in Perth plummeted to just 6.4%, a dramatic turnaround from the high of 43.8% in the June quarter of 2020.
Mixed Results in Melbourne and Sydney
Conversely, Melbourne recorded the highest rate of loss-making sales among the capital cities at 9.2%, up from 8.9% in the previous quarter. This coincided with a 0.5% decline in home values during the first quarter. Owen noted that profitability in Melbourne is unlikely to rise in the coming quarter due to a further 0.2% drop in home values.
Sydney saw a steady profitability rate at 91.6%, though this was a decline from the peak of 96% in October 2021. The combination of higher interest rates and affordability constraints has tempered Sydney's profitability. Nevertheless, Sydney home values hit a new record high in June, with a three-month growth rate of 1.2%, suggesting potential for increased profit-making sales in the June quarter.
Units vs. Houses: A Clear Profit Divide
Across Australia, 89% of all unit sales delivered a profit in the March quarter, up from 88.1% in the previous quarter. However, houses continued to generate significantly higher profits than units. In Sydney, the median nominal gain for house sales was $600,000, triple that of units. Similarly, in Melbourne, houses achieved a median gain of $405,000, more than twice that of units, which earned $154,750.
Brisbane, Perth, Darwin, and the ACT also saw houses delivering more than double the profits compared to units. Owen highlighted that while more units are delivering profits, houses provide a better wealth outcome due to their higher overall gains. This disparity underscores the continuing divide between the 'haves' and 'have nots' in real estate.
Outlook
With more than two out of five property valuers predicting at least a 5% increase in house prices nationwide over the next 12 months, driven by stock shortages, the trend of profitable sales is expected to continue. The current market conditions suggest that sellers, particularly those with houses, are likely to see further gains in the near future.
