After a strong finish to the 2016 calendar year, investment markets took stock in January. The All Ordinaries index closed the month down 0.8% at 5,675 points. The Australian Dollar increased 5.3% in the month, with 1 Australian Dollar currently buying 75.85 US cents.
Global markets were also generally flat in January. The United States Dow Jones index gained 0.5%, the London FTSE fell 0.6% and the Japan Nikkei 225 fell 0.4% for the month. Once again bucking the trend was the Hong Kong Hang Seng Index, gaining 6.2% for the month (after falling in December).
With such a strong property market along the eastern seaboard in recent years, it is hard to recall a time whereby people didn't create wealth via property investment. With this in mind, it is always interesting to review the CoreLogic's Pain and Gain Report which was released late last month.
This report is a quarterly analysis of residential properties which were resold over the quarter. It compares the most recent sale price to the previous sale price (in order to determine whether the property sold at a gross profit or gross loss).
The charts below show the proportion of historical "loss" resales per capital city.
Source: CoreLogic
For Sydney and Melbourne, the proportion of loss making sales over the September quarter was 2.3% and 4.9% respectively. However, what is somewhat surprising, is that on a national level 9.4% of the dwellings resold over the third quarter of 2016 transacted for less than their previous purchase price.
The total gross loss realised over the quarter was recorded at $477.9 million with an average gross loss of $71,529 per sale. Of those homes that resold at a loss, they had a typical length of ownership of 6.1 years for houses and 6.5 years for units – which you would have thought would be reasonable timeframe to make a positive investment return.
The key message I take from this data is that it is vitally important to "do your homework" when purchasing a property and that you "make your money" when purchasing a property (not selling). After all, 9.4% of sales in the third quarter of 2016 were at a loss – in arguably the best property market conditions ever seen.
It is also important to remember that more than 9 out of every 10 homes resold for more than their previous purchase price. Based on these resales there was $17.0 billion in realised profit over the quarter and the average profit across these resales was $262,672.
For more information, please contact Ryan Love or Michael Clapham on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.