Owning a home long-term isn’t always profitable,
Conventional wisdom suggests that owning property long-term guarantees profit upon resale. However, recent analysis indicates this is not always accurate.
In the June quarter, CoreLogic research reveals that profit-making resales had a median hold period of 8.9 years. Conversely, vendors who incurred losses held their properties for a median of 8.0 years, which is only slightly less.
For units, the “hold period” had minimal impact on profitability. Unit resellers who gained money owned their properties for a median of 8.7 years.
In contrast, those who lost money held their units for just 8.5 years, showing little difference.
Although some short-term flippers have faced challenges due to rising interest rates, properties can also decline in value. This decline often occurs when properties are of low quality or owned by investors less affected by selling at a loss.
Nevertheless, property owners who retained their investments for decades were significantly more likely to see substantial profits. Notably, those who flipped properties in two years or less gained a median of $100,000.
Meanwhile, those who held onto their properties for more than three decades earned nearly $800,000. Ultimately, the likelihood of making a profit or loss over time depends on a variety of factors, according to Eliza Owen, head of Australian research at CoreLogic.
| Region | Pain (houses) | Pain (units) | Gain (houses) | Gain (units) |
|---|---|---|---|---|
| Sydney | 3.1 | 7.2 | 9.8 | 9.2 |
| Melbourne | 2.6 | 8.6 | 10.1 | 9.5 |
| Brisbane | 2.4 | 9.1 | 8.1 | 8.1 |
| Adelaide | 3.9 | 11.3 | 9.4 | 7.9 |
| Perth | 10.0 | 10.6 | 9.8 | 9.8 |
| Hobart | 2.6 | 2.0 | 8.7 | 7.1 |
| Darwin | 10.3 | 11.0 | 10.3 | 8.0 |
| ACT | 2.3 | 2.0 | 9.8 | 7.2 |
| National | 5.0 | 8.5 | 9.1 | 8.7 |
| Capital city | 3.0 | 8.2 | 9.5 | 9.0 |
“Generally speaking, Australian property values have risen consistently over an extended period. However, in the short term, expect cyclical fluctuations,” she stated.
“Long-term housing values have increased due to population growth outpacing new home developments. Additionally, Australian housing has been a consistently attractive investment, contributing to rising prices.”
While longer holding periods often result in higher profits, ownership type also plays a role in determining profit or loss.
“Investors tend to be more willing to accept losses on investment properties. This is because they can offset losses against future capital gains,” Owen explained.
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The quality of a property can significantly impact its value.
“What we observed in many high-density housing markets during the 2010s was that many apartments targeted investors specifically,” she explained.
“As a result, when investors exited the market, many poorly constructed units faced decreased demand and struggled to sell effectively,” she added.
This analysis coincides with efforts to increase density in well-connected middle suburbs to address the housing crisis.
Furthermore, units typically yield lower resale profits, noted Diana Mousina, deputy chief economist at AMP.
“Long-term data suggests that houses generally provide better returns than units due to greater price volatility,” she stated.
This volatility arises from various factors, including international student arrivals and migration, which significantly drive student demand in Australia.
“This situation makes units somewhat more vulnerable to market fluctuations,” she remarked.
Additionally, Mousina pointed out that significant differences exist across various markets. For instance, resource-based markets often see properties purchased at peak mining times.
These properties may not recover their full value even after over a decade. “Certain areas in national cities or mining towns experience unique cycles,” she explained.
“Perth faced a prolonged downturn after the mining boom, and people experienced no gains during that period. Similarly, Darwin’s prices stagnated for a long time,” she noted.
The quality of the property is also crucial, said Michelle May, principal buyer’s agent at Michelle May Buyers Agents.
“Our appraisal process as buyer’s agents is not subjective at all,” she stated.
“It relies on factual analysis, highlighting specific attributes that properties must possess to exceed median growth,” she explained.
“Such attributes include location, natural light, finishing quality, and floor plan, alongside features like walkability and green space,” she added.
On the other hand, Mousina noted that shorter holding periods can lead to lucrative profits in certain instances.
“If you perfectly time the market, substantial profits are absolutely achievable,” she stated.
“For example, if you bought at the pandemic’s lowest point and sold in 2024, you could see a 30% return,” she concluded.
