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She said Melbourne house prices were 3.9 per cent below their peak in the March quarter, due to relatively high housing completion rates over the past decade, which had pushed up supply. Less favorable immigration trends Lockdowns have forced residents to leave in recent years, but new overseas arrivals are more likely to rent than buy at first.
“Those who bought at the peak are likely to suffer losses and mortgage servicing appears to be more difficult in some parts of greater Melbourne, so more people are choosing to sell,” Mr Owen said.
Almost two in five properties in inner Melbourne are selling at a loss.
“Some people may not be forced to sell but they are cutting their losses.” She said the rise in the rate of loss-making sales in Melbourne City Council areas was due to a large stock of units built up since the mid-to-late 2010s, which had constrained capital growth.
“It could mean people are just cutting their losses. A lot of these tend to be units that investors own. Investors may be willing to sell at a loss because they can use those losses to offset future capital gains.”
A recent study by the Productivity Commission shows Housing will be cheaper If more houses are built.
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Mr Owen said a well-supplied but underperforming market was ideal from an affordability perspective. “If prices fall, the risk of people being unable to repay their bank loans increases, but for buyers who bought when prices fell, that’s a good thing.”
AMP chief economist Dr Shane Oliver said Melbourne’s high rate of loss-making sales was due to the city’s near-stagnant housing market.
“Generally, the areas with the smallest price increases have seen the largest percentage losses,” Mr Oliver said. “A lot of buyers who bought in the last few years are still losing money.”
“This largely reflects the softening of the Melbourne housing market, which is impacting both houses and units.”
Wakelin Property Advisory director Jarrod McCabe said areas with the most loss-making sales were in Melbourne’s high-rise areas, which were more vulnerable to the weakness in the apartment market.
More property owners in Melbourne sold their properties at a loss than anywhere else except the Northern Territory. Credit: Paul Lowell
Mr McCabe said the longer holding periods in these council areas meant investors were likely to suffer losses when they exited the rental market.
“It’s not just financial pressure that they’re choosing to do this. It’s probably due to changes in investment ownership legislation,” he said. “A lot of things individually wouldn’t be a big deal. But from a landlord’s perspective it feels like a never-ending cycle that’s getting worse and worse.”
“They think: ‘If I own this property in a high-rise building for nine or 10 years and it hasn’t changed in value…’ That’s a significant cost and it’s hard to justify holding on when there’s no growth.”
While the expansion of land tax, the introduction of minimum rent standards in 2021 and high interest rates have led to Landlord operating costsMr Oliver said it was difficult to determine whether investors exiting the market was to blame for weaker house price growth in Melbourne.
“Nobody knows for sure, you can only hear anecdotally,” he said. “The tax changes make it mathematically less attractive to invest in Victoria. It may be marginal, but investment decisions are often made at the margins.”
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