Holding timeframes to improve your odds of success

 It’s fairly well known that due to transaction costs, such as stamp duty and real estate agent’s fees, buying and selling property in Australia too frequently can be a costly experience.

Homeowners intuitively understand this, and the average holding period for houses has increased over recent years.

Sometimes owners fear being unable to execute a suitable move, and the average holding period for houses is now more than 10 years across most parts of Australia.

For units and apartments around the country, more commonly the purview of younger buyers and investors, the average holding period is typically somewhat shorter.

Here too, however, the average tenure of ownership is longer than it once was, with the average holding period for units in the two most mature capital cities, Greater Sydney and Melbourne, now being close to a decade. 

Long term price trends

A longer average holding period serves another important function for owners of established dwellings - and that is a reduced risk of capital loss upon resale.

The long-term trend for nominal housing prices in Australia has been consistently upwards, despite periodic recessions and economic downturns.

Typically houses have performed better than units from a capital growth perspective, well located land being the scarce commodity in Australian real estate.

In particular, there is an ongoing undersupply of desirable houses in the middle-ring suburbs of some of our capital cities, while higher density units have tended to be supplied by the market more readily through the recent construction cycle.

Attached dwellings with a high land-to-asset ratio in mature capital cities such as Sydney – typically more boutique developments in highly sought-after areas – have also tended to fare well over time.

Units in other parts of Australia, especially areas where there has been overbuilding, have lacked the same scarcity value, and on average have not performed as well. 

CoreLogic’s annual compound capital growth rates data shows that where owners have retained property for 10 years or more the risk of loss on resale is dramatically reduced, although even then then have been some cases where prices have displayed negative growth over a decade (most notably in regional Western Australia in recent years).

How, then, to reduce risk when buying today?

Focus on properties with a scarcity value, a high land value content – detached houses where the budget permits for the location you’re interested in – and take a longer term view!