The Sydney suburbs where investment properties are selling at a loss

As many as one in four property investors in some pockets of Sydney are selling at a loss, and many are in the red by tens of thousands of dollars.

Across Sydney, 11.6 per cent of all investor sales made a loss in the September quarter last year, and the median amount lost was $37,020, CoreLogic analysis shows.

In some areas, the figures were much higher. In the Cumberland local government area, 26.4 per cent of investment properties that sold in the September quarter traded at a loss, followed by Parramatta (25.8 per cent), Burwood (23.6 per cent), Ryde (22.6 per cent) and Canterbury-Bankstown (20.7 per cent).

The deepest losses were in Strathfield at a median $72,500 among those who sold in the red, followed by Canada Bay, Parramatta and Ryde on at least $45,000 each.

That compared with outer areas such as Camden and Wollondilly where none of the investment property sales in the quarter lost money. A string of sought-after areas recorded a rate of losses below 3 per cent such as Randwick, the northern beaches and Mosman.

CoreLogic head of research Eliza Owen said although most investor resales make a profit, there were higher concentrations of investor losses in areas where unit values have not moved for a longer period of time, such as Parramatta or Cumberland.

“With a lack of capital growth and high interest costs, investors might be tempted to sell in these areas and just cop the loss,” she said.

“Investors might also be able to use the loss from resale to offset future capital gains on investments.”

She said the investment market is traditionally defined by high density, high-supply areas, which has tended to keep prices down, such as in Parramatta, the inner south-west, or inner Sydney.

A previous Productivity Commission study found housing would be more affordable if more homes were built, while a recent NSW Productivity Commission report also found higher density building could reduce apartment prices and rents and stall the exodus of young people. The report warned Sydney risked becoming a city with no grandchildren.

In some areas, every investor who sold in the September quarter made a profit.Credit: Steven Siewert

Investors who manage to make a profit can reap hundreds of thousands of dollars. In Camden, where all investors made a profit in the quarter, the size of the median profit was $592,500.

Median profits of more than $550,000 were also recorded in the Hills Shire and Woollahra.

Property investors have been in the spotlight recently since Senate crossbenchers called on the major parties to scale back the use of negative gearing tax concessions on investment properties.

Westpac senior economist Matthew Hassan said build quality in Sydney could be one reason why apartments have been selling at a loss.

Especially in areas like Parramatta and Burwood, there have been a number of defects detected in large apartment buildings over the past five years.

“Presumably the folks that are selling at a loss are doing so because of building quality issues, like cracks in the buildings,” Hassan said.

“I also think what we’re seeing is the high premium that detached houses get over apartments.”

Higher interest rates were affecting investors, some who would be selling to reduce debt.

Ray White Parramatta Group selling principal Steven Fan said investors who purchased new apartments five or six years ago, made up the bulk of those now selling for a loss.

“They bought off the plan when the market was hot, when they’re choosing to sell now, a lot are losing money,” he said.

However, he noted a larger proportion of investors were prepared to sell for a loss than owner occupiers. Many were upgrading to house-and-land packages, knowing it would deliver stronger capital gains.

”Yes, they lost some money but they can carry this loss for their lifetime to offset [any future] capital growth and a lot will invest into other property.”

The tax deductions investors could claim for the depreciation on new units, also reduced over time, which was a factor they also weighed up when deciding whether to sell at a loss.

Fan said investor activity had taken a hit as the cash rate climbed over the past two years, but was returning as rents rise.

Belle Property Strathfield principal Norman So said an oversupply of units in Homebush, which falls within the Strathfield Council, has put downward pressure on apartment prices.

“The prices on [some Homebush units] have come back $100,000 and some of those vendors don’t see the market improving anytime soon, so they’re selling,” So said.

While investors may be more willing to cop a loss on their resale, given the ability to offset it against future capital gains, some simply had no choice but to sell as mortgage repayments rise. Although, he is fielding growing investor interest as the cash rate stabilised.