Recent housing sales results suggest many property investors are making a loss – even when they sell, according to Core Logic RP Data's latest Pain and Gain Report.
And while the majority of investors end up making a profit when they sell, the returns aren't that great – even for the one-third of people that doubled their money.
The reason for that is the average time it took to double their money – 17.2 years in capital cities and 18.1 years in regional areas. That's a miserable annual return of around 4% – only just above the rate of inflation.
By comparison, the share market averages around 9-10% per annum over long periods of time.
And then there's more than 9% of property investors that have sold their homes or apartments at a loss on the purchase price, despite holding them on average for 5.4 years.
For property investors buying apartments, there's an even dire warning. Roughly 19.2% of apartments resold in the March quarter for less than their previous purchase price. In other words, one-fifth of apartments cost their owners money, rather than delivering a capital gain.
Oh well, at least they'll be able to claim that capital loss against future investment gains – if they have any.
Commenting on the results, CoreLogic research analyst Cameron Kusher said, "Property ownership, whether for investment or owner occupier purposes, should be seen as a long-term investment."
The end of the resources boom has also seen losses increase for regional areas of Western Australia, South Australia, Queensland and the Northern Territory. Up to 43% of units in regional WA were sold at a loss and 40% in NT.
Based on the statistics, it seems clear that if you want to avoid a loss, property investors are better off buying a house in one of Australia's East Coast capital cities – preferably Sydney, Canberra or Melbourne.
The results also suggest that a number of housing markets suffered a sharp correction in recent months. That's mainly due to the actions by the big four banks – which dominate the residential mortgage market – to limit lending to investors and end lending to investors with foreign incomes.
Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have all taken a number of steps since the middle of 2015 to slow investor lending growth – as well as slash the potential for money laundering and fraudulent lending.
Foolish takeaway
Despite the potential for property to be a great investment, it's clear that many Australian property investors could be achieving better results. Whether it's from having a better strategy or by holding their property for longer – or even better – switching to investing in the share market.
