Investors in Australia’s two largest cities are starting to feel the impact of COVID-19, with up to a third of owners selling for less, new research has revealed. One in three apartments in Melbourne sold for less than what they were bought for during the first three months of the year, according to CoreLogic’s Pain and Gain Report. In Sydney’s surrounding suburbs, up to one in five investors felt the pinch when selling.
The report noted that 33.6% of apartments in the City of Melbourne were sold at a loss, with a median decline of $44,500. In greater Melbourne, 15.5% of apartments sold for a loss.
“For Melbourne and parts of Victoria, the recent rise in coronavirus cases presents ongoing risk to housing market demand. Government lockdowns have been a key determinant of economic performance since the onset of the pandemic,” the report stated. “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.”
However, house prices in Melbourne fared much better, with only 2.7% of investors selling at a loss.
Corelogic’s head of research, Eliza Owen, said: “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.”
In Sydney, the council areas with the highest proportion of loss-making owners were in the suburb of Burwood, where 22.4% sold for less than they were bought for. Parramatta recorded losses at 15.9%t, and the Ryde and Strathfield areas at 13.5%. The housing market in Sydney saw a 5.5% decrease in value.
“Over the March quarter, 7.6% of resales saw a nominal loss across Sydney. Alongside Hobart, Sydney was the only capital city to see a decline in the portion of loss-making sales, down from 7.9% in the previous quarter,” the report noted.
A separate report released by Domain showed that unit rental yields fell by 3.2% (equivalent to $15 per week) over the June quarter. It’s no surprise then that some investors are looking to get out of the market, and are accepting loses while they do so.
Nationally, unit rentals experienced its biggest price drop in more than 15 years, marking a historic rent price fall of 3.2% over the June quarter.
“Rental prices fell across most major capitals, illustrating no city was immune from the impact of coronavirus, with Sydney and Hobart units recording the steepest quarterly fall on record,” said Domain senior research analyst Dr Nicola Powell.
However, CoreLogic noted that investors nationally outperformed Sydney and Melbourne unit sales, with 87.7% of homes sold at a profit in the March quarter, compared with 88.7% in the December quarter, the report showed.
The total value of gross profit derived from resold dwellings was $19.8 billion. This is down 12% from the $22.5 billion gained over the December 2019 quarter, though substantially higher than the $14.3 billion in profit-making sales over March 2019 when the housing market broadly remained in a downturn.
Losses totalled $908.6 million in the March quarter, up from $766 million in the December 2019 quarter.