Fed up with losses, owners are dumping apartments

CoreLogic’s most recent Pain & Gain Report revealed that 16.8% of unit owners sold their properties for a loss in the December quarter of 2020, which was more than double the losses for houses (7.6%):

Loss-making property sales in Australia

Loss making unit sales are more than double that for detached houses.

The latest rental data also showed that unit rents fell 1.7% nationally in the year to March, driven by heavy falls across Melbourne and Sydney:

Annual rents

Annual rents fell across Melbourne, but were turbo-charged across Darwin and Perth.

Fed up with accumulating losses, unit owners have begun dumping their holdings on the market, according to CoreLogic.

As shown in the next chart, there are currently 27,055 dwellings listed for sales across Australia, which is 17.0% higher than the five year average volume usually added at this time of year:

New dwelling listings

New dwelling listings are running well above the five-year average.

This increase in listings has been driven by units, which are running 20.0% above the five year average. By comparison house listings are only running 0.7% above the five year average:

New listings

The rise in new listings has been driven by the unit market.

The biggest uplift in properties for sale relative to the previous 5-year average has also been dominated by Sydney and Melbourne, which is unsurprising given the heavy rental falls across their respective high-rise apartment markets.

There are many reasons to dump high-rise apartment holdings, including:

  1. They hold minimal land value: land appreciates, buildings depreciate.
  2. The holding costs are high due to things like body corporates and maintenance levies.
  3. The quality is often dubious: apartments tend to be built for tax minimisation and marketed to gullible investors (including foreign).
  4. The apartment market is frequently oversupplied and homogenous.
  5. The apartment market tends to accommodate more transient and lower-income renters (e.g. international students).

If you are considering investing in property, stick to detached houses over units. They typically offer better returns at lower risk.

Unconventional Economist

Comments

  1. ErmingtonPlumbingMEMBER

    Those old, brick, 2 story apartment blocks are still a worthy investment in my view.
    Very easy to maintain and renovate. I’ve worked in, under and over many of them.
    The ones where the entries leads to 2 down stairs and 2 up stairs apartments are the best.
    Most of them you can get under the first floor apartments and into a common roof space of the up stairs ones (I found a garbage bag with over 2 pounds of buds in one Kensington roof space once).
    They always seem to be built well with plenty of common areas outside.
    Anything over 10 yrs old with a Lift is a serious no go.

  2. BoomToBustMEMBER

    Am I reading RE data incorrectly? RE.com.au shows 36,000 properties for sale in Vic alone excluding sold etc. This is way about the 27k mentioned in the article

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