Risky suburbs causing homeowners to lose money,
Desperate homeowners are selling their properties for less than their original purchase price. They have given up hope for an early interest rate cut.
As a result, in some city areas, up to two in five sellers are incurring losses. These staggering losses average as much as $69,000 in certain locations.
Most of these losses occur in high-density markets. These markets often feature a surplus of high-rise units that were initially sold to investors.
Particularly, losses are prevalent in the CBDs of Melbourne, Perth, and Darwin. Additionally, Sydney’s second CBD, Parramatta, has also seen significant losses.
Moreover, other notable losses have been recorded in Sydney regions such as Ryde, Strathfield, and Burwood. In Victoria, the Port Phillip and Stonnington areas are experiencing similar trends.
Housing experts have warned that overhauling negative gearing and capital gains tax benefits could lead to an increase in loss-making sales by landlords.
Consequently, this could critically reduce the rental stock available at a time when there are chronic shortages.
Tenant demand is currently high due to record migration rates across the country, intensifying the pressure on the rental market.
Louis Christopher, director of SQM Research, stated, “Changing negative gearing would make the situation far worse for everyone involved.”
Moreover, more investors might decide to sell their properties, exacerbating the housing crisis further.
Additionally, any slight change in unit supply could potentially lead to downward pressure on prices.
This would occur despite the ongoing fundamental shortage of housing in Australia, complicating the issue even more.
The controversial tax incentives came under scrutiny last week after treasury officials sought advice on potential policy changes.
In response, Prime Minister Anthony Albanese clarified that Labor is not considering negative gearing reforms for the next Federal election.
Ben Kingsley, chairman of the Property Investment Council of Australia, expressed concerns that investor sell-offs of rental properties could negatively impact rents.
He emphasized, “Outside of the much-needed social housing for our most vulnerable citizens, who will provide short-term housing?”
Kingsley further questioned who would accommodate those starting new jobs, new immigrants, or individuals seeking a lifestyle change.
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Mr. Kingsley warned that changes to negative gearing would “suffocate the supply of private rental accommodation” in Australia.
He added, “Rents will inevitably increase to offset the higher holding costs for the few small business owners remaining.”
Recent seller losses have been concentrated in high-density markets where a surplus of apartments has been constructed in recent years.
It is understood that most of these properties were sold to investors who purchased them off the plan.
According to a report by CoreLogic, just under 39 percent of sellers in the Melbourne CBD accepted prices below what they initially paid.
Furthermore, the median loss for these sellers was reported to be around $64,000, highlighting the financial challenges faced.
A similar trend was observed in the Perth CBD, where just over one-third of sellers accepted prices below their purchase amounts.
For most vendors in this area, the average loss was approximately $42,000, reflecting significant financial challenges.
In the Darwin CBD, about 36 percent of sellers experienced losses, while around 30 percent faced similar issues in Palmerston.
Additionally, one in four sellers in Sydney’s second CBD, Parramatta, sold their properties for about $50,000 less than they paid.
In Sydney’s Strathfield, Burwood, and Ryde, around one in five sellers accepted losses on their resale transactions.
Moreover, in the Sydney CBD and Liverpool, it was about one in ten sellers who faced similar losses.
Mr. Christopher noted that these loss-making sales were likely driven by investors offloading properties they could no longer afford.
He stated, “It’s absolutely coming from investors,” highlighting the impact of the Reserve Bank’s reluctance to cut interest rates.
Christopher added, “We’ve seen areas where many units were built in 2018, and those investors are now selling at a loss.”
He suggested that many of these properties were overpriced from the start, purchased during a hot market.
Consequently, buyers paid significantly above market value and were then forced to sell at a loss.
“This situation poses a constant danger for those who buy properties off the plan,” he cautioned.
According to PropTrack’s latest Home Price Index, price growth across the country slowed in September, with a rise of only 0.04 percent.
The average increase in capital cities was even lower, at just 0.01 percent, which has been described as “flat.”
