06.08.2022 Buying Tips

How Long Do You Need To Hold Onto A Property To Make A Profit?

How Long Do You Need To Hold Onto A Property To Make A Profit?

How long do you need to hold onto a property in Sydney’s eastern suburbs before you make money from it?

We take a look at the data on-hold times and profit in Sydney property.

Many people buy property as a way to build wealth. But while the market usually rises in the long run, in the short term it often stays flat or even falls. With that in mind, we take a look at how long you need to hold onto an Eastern Suburbs property to ensure you make a profit.

How the property market works

The first thing to understand is that while the long-term trend has been for Sydney property prices to rise, values don’t go up in a straight line. Instead, we tend to find there are often bursts where prices rise very quickly (as they did over 2021). But more often than not, the rate of growth is moderate and there are times when prices actually go backwards for a bit.

So, while the median rate of growth in Sydney property values has been 7.4% over the past 40 years, on a year-by-year basis it has looked something like this.

Year Rate of growth in median Sydney property value
2021 26.7%
2020 3.7%
2019 3.7%
2018 -7.8%
2017 3.8%
2016 10.3%
2015 13.9%
2014 12.2%

* Source: ABS Residential Property Price Indexes: Eight Capital Cities

The property growth cycle

The table shows that last year’s stellar property market really was an outlier, with the rate of growth double that of even other good years. It also shows that property prices don’t move upwards at anything like a stable rate.

While ‘buying low and selling high has always been the goal of any investor, the reality is that no one can predict with certainty which way the property market will go. When COVID-19 struck, almost all economists forecast a big fall in property prices. Instead, we got a one-in-30 year boom.

That means buyers who enter the market at certain points will make a quick profit, while buyers who enter at other times will make a loss unless they continue to hold onto their asset for some time.

Say, for instance, a buyer who bought a property valued at $1 million at the very beginning of 2017. If we take the percentage growth above as our guide, by the start of 2017, they could have expected that property to be worth $1,038,000. But by the end of 2018, it would have been worth just $957,036. Two years later at the end of 2020, it would have still only been worth $1,029,167.

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Given that the transfer duty they would most likely have needed to pay on a $1 million property was more than $40,000, they would not have made any money at all until 2021. And, by the end of that year, their property would have been worth $1,303,954.

Conversely, someone who bought at the start of 2021, would have made an almost immediate profit.

Interestingly, CoreLogic research analysing the December 2021 quarter found that the median hold time for a profitable sale in the Sydney market was 9.6 years for a house for an apartment. Meanwhile, the median hold time on a loss-making sale was 6.8 years for a house and 5.1 years for an apartment. However, given the strong market conditions, it also found that just 4.3% of Sydney property sales made a loss.

Risk vs return

If you’re investing in property, another factor to remember is that all property purchases come with an element of risk. In established blue-chip areas, the potential of making a big loss on a property will often be lower than in less established areas because there is already strong demand for the location. And, as with any investment, the trade-off for taking on more risk should be the potential for higher returns.

The fact that the Eastern Suburbs tend to be established is reflected in the lower yields property investors receive compared to other parts of Sydney. But the flip side is that our market tends to perform well through all conditions. It’s also worth mentioning that many parts of the Eastern Suburbs have been among the highest performing suburbs when it comes to capital growth in the whole country over the long term. For instance, Bronte’s median price rose 946.1% over the 30 years to 2021 and Bellevue Hill’s rose 682.2%. This compares with a nationwide average of 414.6%.

Owner/occupying vs investing

Finally, it’s worth mentioning that if you’re buying a property to live in rather than as an investment, it can actually be a good thing to buy and sell in a slower or falling market, especially if you’re upsizing.

That’s because you won’t just have more choice and therefore more chance of securing the right home, you’ll also find the gap between the value of your existing home and your next home will be closer together than it would be if the market was strong and prices were rising rapidly.

Want more?

If you’d like to know more about buying or selling in Sydney’s eastern suburbs, get in touch.