Melbourne suburbs where property owners are selling at a loss

Home vendors in Melbourne are now more likely to sell at a loss than anywhere else in the country except the Northern Territory.

The proportion of Melbourne property sales struck at a loss reached 9.2 per cent in the March quarter, compared with 8.9 per cent three months earlier, CoreLogic’s latest Pain and Gain Report, released on Wednesday, shows.

The only markets where sellers are more likely to lose money are Darwin (28.7 per cent) and the rest of the NT (14.3 per cent).

Losses were concentrated in the City of Melbourne council area, which includes the CBD, Carlton and East Melbourne, at 38.9 per cent of resales in the quarter. There the median loss was $54,500 and the median hold period was 9.8 years.

It was followed Stonnington (29.8 per cent), Yarra (24.7 per cent) and Port Phillip (23.9 per cent) councils. All had median hold periods of between eight and nine years.

In the Maribyrnong council area, 20.4 per cent of sales in the quarter were struck at a loss, up from 16.5 per cent in the prior quarter, in the wake of the flood event in late 2022.

Units fared far worse than houses over the quarter. Just 2.6 per cent of Melbourne house sales were at a loss while 18.9 per cent of unit sales were, though the portion of loss-making apartment sales was down from a recent high of 21.9 per cent in March 2023.

CoreLogic head of Australian research Eliza Owen said a combination of poor selling conditions and more owners deciding to sell in a lacklustre market had pushed up the rate of loss-making sales in Melbourne overall.

Melbourne home values were 3.9 per cent below their peak in the March quarter, she said, due to a decade of relatively high dwelling completions that pushed up supply and the less favourable migration trends of recent years in which lockdowns prompted residents to leave but new arrivals from overseas are more likely to rent than buy at first.

“Those who bought towards the peak are likely incurring a loss and there are some pockets of Greater Melbourne where it appears that mortgage serviceability is more of a struggle and you have more people induced to sell,” Owen said.

Nearly two in five inner Melbourne property sales are being struck at a loss.

“There might be people who aren’t forced to sell, but they’re cutting their losses.” She said the elevated rate of loss-making sales in the Melbourne city council area was due to the wave of unit stock added since the mid to late 2010s, which kept a lid on capital growth.

“That could mean that people are just cutting their losses. A lot of these tend to be investor-owned units. Investors might be comfortable selling at a loss because they can offset their future capital gains by those losses.”

A recent Productivity Commission study said housing would be more affordable if more homes were built.

Owen said a market with plenty of supply that is performing poorly, is desirable from an affordability perspective. “If prices are falling it increases the risk of people not being able to repay the bank but it is a good thing for buyers that are getting in on that downswing.”

AMP’s chief economist, Dr Shane Oliver, said Melbourne’s high portion of loss-making sales was because of the city’s near-stagnant property market.

“Usually, you have the greatest proportion of losses in areas where house prices have shown the least amount of gain,” Oliver said. “A lot of buyers who bought in the past couple of years would still be underwater.

“It’s largely a reflection of the weakness in the Melbourne property market which affects both houses and units.”

Wakelin Property Advisory director Jarrod McCabe said the councils with the most loss-making sales were high-rise heavy areas of Melbourne, and were more exposed to weakness in the unit market.

More property owners are selling at a loss in Melbourne than anywhere except the Northern Territory. Credit: Paul Rovere

The longer hold periods in these council areas implied investors were likely copping a loss while exiting the rental market, McCabe said.

“It’s not just financial stress, they’ve elected to do it. It’s probably due to the changes in legislation for investment ownership,” he said. “A lot of those things in isolation are not a big deal. But from a landlord’s perspective it feels like a never-ending cycle, and it’s constantly more and more.

“They think: ‘If I’ve owned this property in a high rise for nine to 10 years, and [the property’s value] hasn’t gone anywhere...’ It’s a significant cost and it’s hard to justify to continue to hold when the growth is just not there.”

While an expanded land tax, rental minimum standards introduced in 2021 and high interest rates have increased landlords’ costs of doing business, Oliver said it was difficult to pinpoint if investors exiting the market was the cause of Melbourne’s weak price growth.

“No one knows for sure, all you can do is go by the anecdotes,” he said. “Tax changes make it mathematically less attractive to invest in Victoria. It can be at the margins, but often investment decisions are made at the margins.”