Vendors' pain as a third of Melbourne apartments sell for loss during COVID-19

author-avatar By on July 10, 2020
Vendors' pain as a third of Melbourne apartments sell for loss during COVID-19

Pictured: Melbourne. Photo by John Kappa on Unsplash

One in three apartments in Melbourne sold for a loss in the March quarter, as a second wave of the virus and new lockdown measures raise concerns of a bigger hit on the property market.

The CoreLogic Pain and Gain report shows 87.7% of national property sales made a profit in the March 2020 quarter - but not everyone was a winner.

In Melbourne, 33.6% of homes sold at a loss at a median value of $44,500.

These 120 properties were all apartments, and 68.6% of them were owned by investors.

As Melbourne goes back into lockdown, fears have been raised that the second wave of coronavirus could have a bigger impact on the property market.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayment
 
2.59% 2.55% $1,599 Go to site
2.89% 2.89% $1,663 Go to site
Budget Home Loan OO P&I
2.68% 2.74% $1,618 Go to site

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 August 2020. View disclaimer.

CoreLogic Head of Research Tim Lawless said it's likely the Melbourne property market will be hard hit.

"If the housing market’s performance through the previous lockdown is anything to go by, it’s highly likely that Melbourne property transaction activity will see a sharp drop over the next six weeks, with both a material decline in new listings as vendors lose confidence in testing the market, and a lower number of sales as buyers retreat to the sidelines," Mr Lawless said.

"Real estate agents are arguably more prepared to switch towards an online selling environment, however, as we have seen through the previous lockdown period, the negative impacts of weaker confidence and less ability to inspect a property is likely to result in less buying and selling activity.

"With dwelling value declines already being led by the Melbourne market, which saw dwelling value declines of 2.3% in the June quarter, it is highly likely that there will be an increase in the portion of loss-making sales in the metropolitan area over the coming months."

Nationally, the report found that 87.7% of homes sold at a profit in the March quarter, slightly down from 88.7% in the December quarter.

However, a 32.4% decline in transaction activity in April suggests that the second half of 2020 could see an increase in loss-making sales.

CoreLogic Head of Research Eliza Owen said the impact of COVID-19 was felt more in the drop in transaction volumes, rather than in loss-making sales.

"There has been an uplift in the portion of loss-making sales over the March quarter. But despite the potential for some fallout from COVID-19 at the end of the quarter, only a small portion of the loss-making sales are a reflection of the onset of the pandemic," Ms Owen said.

“The Pain and Gain results over the second half of 2020 could see an increase in the portion of loss-making sales, but the volume of sales activity may be more subdued, as vendors were less likely to test the market at the height of the pandemic.

"However, assistance for mortgage holders whose jobs and incomes have been impacted by the pandemic was likely also instrumental in keeping loss-making sales low.”

Biggest winners (and losers)

Across the capital cities, most areas saw an increase in the number of loss-making sales over the March quarter.

In Darwin, over half of the properties sold (50.5%) did so at an average loss of -$119,000.

But in Hobart, vendors enjoyed average gains of $217,000 where 97.6% of sellers sold at a profit.

Portion of loss-making sales - March 2020 quarter Portion of loss-making sales - December 2019 quarter Change (%)
Sydney 7.6% 7.9% -0.2%
Melbourne 6.8% 6.3% 0.5%
Brisbane 12.9% 12.0% 1.0%
Adelaide 10.0% 8.9% 1.1%
Perth 36.3% 36.1% 0.2%
Hobart 2.4% 2.7% -0.4%
Darwin 50.5% 47.7% 2.8%
ACT 10.6% 10.2% 0.5%

Source: CoreLogic

In Sydney, the biggest losers were in Burwood where 22.4% of properties sold at a loss, followed by Parramatta (15.9%) and Ryde and Strathfield (13.5%). 

Nationally, houses were less likely to sell for a loss than units, with 90.3% of houses sold at a profit compared with 80.2% of units in the March quarter.

The median profit for resales was $130,000 for units and $230,000 for houses.

Across the capital cities, the higher number of loss-making unit sales was in Darwin, where 68.6% of units sold at a loss.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

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