Regional markets reign supreme as capital cities slip

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Despite the broad decline, data showed the regions were largely sheltered from the downturn, with 97.6 per cent of houses generating a profit, compared to 97.3 per cent in the capitals

Domain chief residential economist Nicola Powell said regional markets had been bolstered by more Aussies looking beyond the capital cities for property purchases.

“Profitability in the regions actually outperforms the capitals, whether you are talking about units or houses, and I think that is quite telling,” Powell told SPI.

In the unit markets, data showed that combined regions outperformed the combined capitals by almost 11 percentage points, with 96.9 per cent of units selling for a profit compared to just 86.1 per cent.

In addition to a greater share of profitability, the data showed that units in regional areas sold for $265,000 above their purchase price compared to $225,000 in the combined capitals.

“When looking at units, the dollar figure in regionals is actually also higher than the combined capitals, which says a lot about where units are in regional Australia.”

Of the regional markets, Queensland was the strongest performer, with 98.4 per cent of houses returning a profit at a median of $432,500, while 97.6 per cent of units generated a gain of $321,000.

NSW also performed strongly, with record median profits of $370,000 and $250,000 for houses and units respectively.

Conversely, the Northern Territory was the most significant outlier among regional markets, with only 81.7 per cent of houses and 74.1 per cent of units selling for a profit, and recording the lowest median profits due to weaker demand and lower transaction volumes.

What it means for the market

Powell said that the decline may signal the beginning of the end for the long run of resale profitability.

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“I think the crack is marginal, but it says a lot about what market dynamics are unravelling across Australia’s housing market.”

“This is the first crack in profitability as a result of where we are in this price cycle.”

She said that while the data still seemed relatively strong, profitability was often a lagging indicator of the impact of changes in house values.

According to Powell, the majority of those selling their properties at a loss fell into two categories: investors willing to take the hit as a tax write-off, and those forced to sell under financial pressure.

Powell said the biggest impact would be on homeowners who were already stretched to the end of their own affordability.

“Obviously that scenario is significantly damaging to their wealth profile and is the worst case scenario for any homeowner, particularly owner-occupiers. They are ultimately owing the bank more than what their home is actually worth.”

“Those that are selling for a loss, some of those are likely shorter-term owners where they’ve stretched themselves financially and perhaps even overpaid for their home and are now at the point where they have to sell the property.”

Powell said that while she expected the softening conditions to continue, current owners would likely protect themselves from selling for a loss simply by deciding not to transact.

“It’s a timely reminder that property is about the long game, not getting distracted by the short-term fluctuations.”

Additionally, she said that buyers had the upper hand in the current market, and that sellers needed to price their properties correctly to achieve a timely sale.

“There is a clear mismatch between where buyer and seller pricing is at the moment, and that’s why we have such a weak clearance rate.”

“We know that the longer a home stays on the market, the deeper the opportunity for a discount becomes.”