Gap between house and unit profitability narrowing: CoreLogic

Around 99,000 dwelling resales were analysed for the September quarter Pain & Gain report

Gap between house and unit profitability narrowing: CoreLogic
Gap between house and unit profitability narrowing: CoreLogic

The longtime gap between house and unit profitability is narrowing, according to analysis of around 99,000 dwelling resales in the September 2021 quarter.

House resales continued to have a higher chance of nominal gain (95%) than units (86.5%), however the CoreLogic advised the gap had narrowed.

The trend was occuring “as affordability constraints limit growth in the detached house market and gradually deflect demand towards higher density housing options,” Ms Eliza Owen, the research head at CoreLogic advised.

"Profitability of residential real estate continued to be buoyed by low interest rates, and a fall in advertised stock through the period," she said.

Amid the 99,000 resales, some 92.4% recorded a nominal profit-making gain from the previous purchase price, up from 87.5% in the September 2020 quarter.

Hobart was the strongest performing unit market with some 99.5% of resales at a profit, better than the 97.5% for houses.

There was very little difference between the rate of profitability in regional NSW for houses and units, which was 97.7% and 97.1% respectively.

Victoria's regional unit sales saw a 97.4% profit success rate, compared to across Melbourne where sellers secured a profit amid 89.1% of their sales. The report noted this marked a larger increase from the previous quarter of 130 basis points for Melbourne.

Sydney sellers of units saw profits 92.9% of their sales in the September quarter.

Owen also advised the gap between profitability in the regions and capital cities widened through the September quarter.

The portion of profit-making sales across the capital cities increased 10 basis points to 91.9% in the three months to September, while the rate of profit- making sales in regional Australia increased 90 basis points in the quarter, to 93.1%.

The median nominal gain made on resales nationally was $270,000, while median losses were at $37,000 in CoreLogic's quartery Pain & Gain report.

At the national level, the portion of profit-making sales increased across both houses and units.

Units accounted for 26.9% of total resales through the period, but represented 59.2% of loss making resales.

"However, the rate of profitability increased more rapidly in the unit segment," Owen said.

Units had a larger typical decline on loss-making resales at $40,000, compared to $32,000 across houses.

The lowest incidence of profit-making unit sales was across Darwin, where over half of unit resales made a nominal loss (55.8%).

Perth, Brisbane and the ACT also saw a relatively large divide between profitability in houses and units.

Owen noted some of the key factors that have weighed on unit profitability relative to houses over the past few years included high levels of unit stock being developed relative to detached houses, and negative demand shocks to the investor market, where demand for units tends to be more concentrated.

"However, in the past year some of these dynamics have shifted slightly.

"ABS data shows unit construction activity has remained subdued through 2021 when compared with the house segment.

"Between 2016 and 2020, Australia saw around 1.2 house completions for every unit completion nationally, which increased to 1.4 houses for each unit over the first two quarters of 2021.

"The boom in house construction activity, which has been in part a response to owner- occupied incentives such as HomeBuilder, may ease the growth and profitability of houses in the next few years as they are completed," she said.

Owen suggested future quarters could see further narrowing between house and unit profitability.

The combined value of profit from resales in the September quarter totalled $27.3 billion, while resale losses totalled $368 million in the same period.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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