RP Data: Time Drives Property Profits Just As Much As Location

Getty/Brendon Thorne

RP Data released their latest “Pain and Gain” report today, which looks at the performance of properties sold in the first quarter of 2014 compared against their purchase price.

The data from “64,518 residential property resales nationally” showed that 9.8% recorded a gross loss on the original sale price. That’s before stamp duty on the way in, sales fees on the way out, holding and other costs were considered. .

As RP Data points out, that means that 90.2% of sales recorded a gross profit.

But the data also highlights the enduring risk to holiday homes and “lifestyle regions”,

Lifestyle regions continue to show the largest proportion of loss making re-sales, particularly within the unit markets as opposed to detached housing markets. Queensland’s Wide Bay region has recorded the largest proportion of loss making resales, with 30.6% of all March 2014 quarter re-sales transacting at a price lower than what the home was purchased for. It is important to note that while loss-making re-sales remain a high proportion of the market, in many of these regions the proportion of these sales is now trending lower.

In contrast, and unsurprisingly, Sydney recorded a “loss rate” of just 3.0% down from 3.6% in the previous quarter. Perth was second lowest but its loss rate increased marginally to 5% from 4.3% in Q4 2013 while Melbourne came in third at 7.4% in the first quarter up from 6.0% in the fourth quarter of 2013.

Interestingly, the data also shows that when it comes to property, time heals all wounds and covers up all sins – with the longevity of ownership correlating highly with a high profit rate.

RP Data highlights this link between time held and loss rates saying,

As a stark example, those homes that were previously purchased prior to January 1st, 2008 (ie pre-GFC) and were subsequently sold during the March quarter of 2014, only 5.7% of re-sales were made at a gross loss. For those homes that were purchased on or after January 1st, 2008 the propensity to make a loss on the sale climbs substantially. Of those homes that sold over the March 2014 quarter, 16.4% recorded a gross loss relative to the previous purchase price.

To further illustrate this point, for those re-sales that incurred a gross loss over the March quarter, their average length of ownership was just 5.5 years. Properties that recorded a gross profit were held for an average of 9.7 years, while those homes that recorded a gross profit of more than 100% of the previous purchase price were owned for an average of 16.2 years.

Indeed, the data shows the probability of loss falls to an extremely insignificant level while the probability of a more than 100% gain rises substantially.

Source: RP Data Pain and Gain Report march Quarter 2014

So location matters, but when it comes to Australian property, the tide of time lifts most boats.

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