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Units are now selling for a loss at twice the rate of houses - and it may indicate investors are willing to take the hit

Sam Jacobs
  • 14.3% of Australian unit sales resulted in a loss in the June quarter, compared to 7.2% for houses.
  • Data from CoreLogic showed results vary significantly by region.
  • CoreLogic says unit underperformance is due to oversupply, underlying land values, and investor behavior.
  • Around 68% of units are investor-owned, compared to just 22% for houses.

If you're an Australian unit owner who sold up in the June quarter, there's a 14.3% chance you took a haircut.

Data from Corelogic shows that figure is around double the rate of detached dwellings (7.2%) selling for a gross loss in the three months to June 30.

CoreLogic's head of research, Tim Lawless, said the number represent a "growing divergence" between houses and units which sell at a loss.

Beneath the headline data though, results vary significantly by region.

And not surprisingly, the cities with the highest proportion of units which sold for a loss were also those where property prices have been in decline over recent years.

In Darwin, unit values have fallen by 44% from their peak in 2010 while the Perth market is down 47.5% from its January 2008 high.

By comparison, Sydney unit values are still up from 43% from their levels five years ago.

More than 70% of unit sales in Darwin went for a loss in the June quarter, compared to just 3.5% in the Sydney market:

Although Sydney unit values are holding up, there's still a big pipeline of new supply to come. And Lawless hinted at some upward pressure on that 3.5% figure.

"As values continue to slip lower and supply levels rise, we are likely to see loss making resales rise," he said.

Noting that most apartment developments are built in city locations, Lawless looked at the trends for inner-city unit resales in Melbourne and Brisbane.

Brisbane had a 32% loss rate, while apartments resales in inner-city Melbourne had a loss rate of 22%, well above the 11.8% average in the above chart.

"With unit values now falling in Sydney and Melbourne and the pipeline at, or close to record highs, we could see loss making resales diverge further in these markets," Lawless said.

In addition, data released by Westpac last month showed its taking longer for units to sell in the current market.

However, CoreLogic's data to the end of August showed unit prices have been holding up better than home values in the major east coast markets:

So why are unit owners more likely to book a loss once their property changes hands?

Aside from the increased potential for oversupply, Lawless said its partly due to the fact that units "are more likely to be owned by investors".

Around 68% of units are investor-owned, compared to just 22% for houses.

And if investors do sell for a loss, they "can take advantage of taxation benefits such as offsetting their losses against future capital gains".

It's also important to take underlying land values into account. While property values in Sydney and Melbourne are falling, the cost of vacant residential land continues to soar.

"Detached houses have a stronger relationship with land values which is likely contributing to the long run trend of higher capital gains for houses relative to units," Lawless said.