Conventional wisdom holds that hanging on to property for an extended period is a guaranteed way to make money, but new figures show that isn’t always true.
The small proportion of Australian home vendors who sold at a loss in the December quarter held their properties for almost as long as those who sold at a profit.
Nationally, 95.9 per cent of dwellings exchanged in the three months to December delivered sellers a windfall in nominal terms, Cotality’s latest Pain and Gain Report finds.
Houses performed best, with 98.1 per cent of house resales recording a profit in the December quarter compared with 91.2 per cent of units. On average, profit-making resellers held on to their properties for 9.2 years, while those losing resellers waited almost as long: 8.2 years.
The median hold period among loss-making Sydney unit resellers was 8.4 years, compared to the median 10-year hold period for profit-making unit sellers.
It was even closer in Melbourne, where loss-making unit resellers held their properties for a median 9.6 years versus the median 10-year hold period of profit-making unit resellers.
The median return for vendors nationally who resold at a profit within two years of buying was $150,000, while profit-makers who held on for two to four years netted $215,000, on average.
The median return jumped significantly, to $325,000, for profit-making resellers who waited four to six years. Those who resold for a profit after 30 years or more made $898,500, on average.
Gerard Burg, Cotality head of research, said resellers who did best in profit-per-year terms had held their properties for four years or more.
“An example is Kiama on the NSW South Coast, where successful resellers made $730,000 and held their properties for 10 years, on average.
“If you’d resold a property in Kiama that you’d held for just four years, you would have been looking at a loss because values there are still well off the peak that we saw during the COVID period.”
While holding property for an extended period increased the odds of handing it off at a profit, Burg said it wasn’t always enough.
“If you look at Parramatta in Sydney’s west, for example, almost 24 per cent of homes sold at a loss, despite an average hold period of nine years.
“What we’ve seen there is a very rapid increase in the supply of units, which has really put pressure on overall values.”
Buyers’ agent Michelle May said, in her experience, the properties most susceptible to reselling at a loss were “dime a dozen” units in high-density areas.
“At any point in time, there will be another one exactly like yours for sale, and if it is owned by someone with more pressing needs than you, they could drop their price, which is also going to affect you.”
Brand new and off-the-plan properties were also a risk, May said, because they tended to lose value after the initial purchase.
“It’s like when you buy a new car: you’re paying for that new-car smell. The moment you drive it off the lot, you lose a couple of grand off the value. Buying a unit no one’s ever lived in is like that.”
To come out ahead in real terms, sellers should be prepared to wait at least five to seven years, May said.
“You need to allow enough time to pass to recoup your buying costs, like stamp duty, and the selling costs that people often forget about when making these calculations, like the agent’s commission and the marketing.”
The simplest way to ensure capital growth, May said, was to buy best-in-class property rather than a fixer-upper or a bargain.
“If you buy an A-grade property, it’s going to perform above the median growth of that suburb. But if you buy a dud, you’ll fall behind the median. You might make money in nominal terms, but in real terms you’re likely to lose out.”
Dr Shane Oliver, AMP’s chief economist, said as a general rule, the likelihood of property and other assets appreciating increased over time.
“In the short term, volatility can make prices go up and down, and it’s quite easy to be wrong-footed by that. That’s the nature of all assets.”
For example, many property markets, including Melbourne’s, Canberra’s and Hobart’s, were still off the peaks set in 2022, he said.
“But if you bought at the top of the market in 2008, just prior to the global financial crisis, you’d be ahead now, even though we’ve seen several cyclical downswings since then.”
Oliver said generic properties were more likely to stagnate in value than distinctive homes. But he cautioned those hoping for capital growth against buying too far outside the norm.
“If the appeal of a home is very specific, then the buyer pool is likely to be smaller.”
Dan F Stapleton writes on First Nations issues, visual art, property and more. His writing has appeared in The New York Times, the Financial Times and others. He is based in Sydney.