The Melbourne suburbs where property owners are selling at a loss

Melbourne home sellers are more likely to make a loss than those in any other Australian capital city, with 11 per cent of home sales in the June quarter making a loss.

Just over one in five Melbourne units sold at a loss, almost double the rate of those in Sydney, while 4.3 per cent of house sellers lost money, data from real estate analytics firm Cotality shows. In both cases, Melbourne sellers were the most likely of any capital city to make a loss.

By region, the City of Melbourne topped the list for losses in local government areas. Almost half (47 per cent) of sales in the unit-dense market sold at a loss, despite the area having the longest holding period for owners before selling. A third of home sales in sought-after Stonnington made a loss, while about a quarter of sales in Boroondara and Port Phillip lost money.

Cotality economist Annabelle Mezieres said Melbourne’s relatively high rate of loss-making sales reflected its much weaker capital growth than other capital cities.

“Values rose by just 0.8 per cent over the five years to June, so owners who bought during that period have had little or no gain to absorb a fall,” she said, noting even a modest decline could mean a loss for some sellers.

“Melbourne was also the first capital to enter the downturn, and higher interest rates, reduced borrowing capacity and softer investor demand have added to those pressures.”

Ray White Southbank agent Tommy-Lee Davies thought expensive off-the-plan apartment sales which did not break even at resale helped explain why the Melbourne local government area was over-represented in loss-making sales, with a median loss of $61,250.

“Anyone in the world can buy [a unit] off the plan, but as soon as it becomes second-hand, you go from a global market to people that are only here,” he said.

“That’s where I’ve seen the biggest losses – people losing hundreds of thousands of dollars … [Apartments are] still not even selling for what they did 10 years ago off the plan.”

Mezieres said the 9.3-year median holding period for loss-making unit sales, compared to 4.2 years for houses, suggested unit losses were not the result of recent price falls but a longer-term issue.

“Melbourne units have had weaker growth and are more exposed to softer investor demand,” she said.

A property Davies sold in September for $405,000 fetched about $150,000 less than the $556,000 it last sold for in 2015. Multiple properties in the same 2006-built block have sold for six figures less than they were bought for within the past decade.

But the agent thought that owner-occupiers weren’t buying in the Melbourne area to double their money over time – it was for the lifestyle.

“It’s a really, really good place to live – close to the city, you’re surrounded by parks, just five minutes away from work,” he said.

Agents in areas like Stonnington – where 33 per cent of sales made a loss in the June quarter – said that while more vendors were making a loss, owner-occupiers also had a rare opportunity to upsize for less.

Biggin Scott Richmond agent Ignacio Rodriguez recently sold a two-bedroom apartment in South Yarra for $555,000 – less than the $580,000 his client bought it for in 2019.

But the client was able to buy a double-storey terrace home nearby thanks to the comparatively larger savings on houses in the suburb – while South Yarra units have gained 0.5 per cent in value in the past year, houses have lost 10.8 per cent, on Cotality data.

“There’s big gains to be made for those who are in a position where they can,” Rodriquez said, noting a $25,000 loss on an apartment could pale in comparison to savings on a larger house.

Mezieres agreed top-end values had fallen further than other segments of the market in the June quarter, reducing the gap between mid-priced homes and more expensive options.

Kay & Burton Stonnington agent James Paull said he hadn’t “seen such great opportunity for home owners to upsize in property” in the course of his career, particularly in prestigious suburbs like Toorak.

But he said losing money on any purchase, particularly a home, was an emotional hit.

“It’s a hard thing to stomach,” Paull said. “So if you are looking to sell, it’s important you understand your ‘why’ – is it a lifestyle decision? Do you need a larger home?”

He also warned against chasing short-term gains, saying property is a “get-rich-slow game”.

Mezieres said Melbourne was likely to continue to produce a higher proportion of losses, but noted the vast majority – 89 per cent – of homes sold for a profit in the June quarter.

She thought this presented an opportunity longer-term.

“Weaker growth has left Melbourne comparatively more affordable,” she said. “This improved affordability could support demand once the economy stabilises.”