Investing for the long term

We’re often told you need to invest for the long term, however how long is long enough?  CoreLogic RP Data’s recently released Pain and Gain report for the September quarter gives an indication of what you can expect over time.

 

investingThe good news is that in general you can expect a profit.  Across Australia 9.3% of all home resales recorded a gross loss for the September quarter, indicating that 90.7% of sales made a profit.  The combined capital city figure for losses was 6.3% compared with 15.4% over regional markets.  30.1% of resales made a profit of 100 percent or greater.  The average loss was $62,246 and the average gross profit across resales was $223,870.

Across Perth

Perth’s proportion of loss making sales for the quarter was reported at 6.0%.  94.0% of property sales made a profit, with 37.0% of sales recording a profit of 100 percent or greater.  Bassendean and Peppermint Grove council areas had no sales at a loss over the quarter, while Canning had just 0.7% of all sales at a loss.

Regional Western Australia had the highest proportion of loss making sales across the country with 22.5% recorded, slightly ahead of regional Queensland with 22.0%. However the report states that both regions are now showing an improvement in buyer demand and dwelling values.  While 22.5% may generate some concern, it is worth noting that 37.4% of properties sold for more than double their original purchase price.

Length of ownership

Homes resold after between 3 and 5 years of ownership were the most likely to record a gross loss (18.7%) followed by those sold between 5 and 7 years (16.7%).  Supporting the belief that property investment is a long term pursuit, of those homes resold between 10 and 15 years after the original purchase 48.6% sold for double their original purchase price with the proportion rising to 95.2% for homes sold after 15 years of ownership.

This is a national result and the time frames varied across the country.  In Sydney and Perth, homes previously purchased and sold over the past 12 months were most likely to record a gross loss. In Melbourne, Adelaide, Hobart, Darwin and Canberra homes previously purchased between 2009 and 2011 were the most likely to record a gross loss. In Brisbane, homes purchased between 2007 and 2009 were more regularly sold at a loss over the past quarter.

The long-term nature of housing investment is again evident with very few homes recording a gross loss once they have been owned for more than 10 years.

To further illustrate this point, for those resales that incurred a gross loss over the September quarter, their average length of ownership was just 5.7 years. Properties that recorded a gross profit were held for an average of 9.9 years, while those homes that resold for more than double the previous purchase price were owned for an average of 16.8 years.