Most home owners tend to ‘hold’ their Australian property for at least five years. In many suburbs and regions around Australia the hold periods are much shorter.
A suburb’s hold period is the average time period between when a property is purchased and when it is re-sold. Across Australia’s capital cities, the average ‘hold period’ for houses ranges from 4.5 years in Darwin up to 9.3 years in Melbourne.
Units are typically held for a shorter period of time, ranging between 4 years in Darwin and 8 years in Melbourne.
The hold period can provide some interesting insights into a property markets profile. A shorter hold period implies that properties are being transacted more frequently than a region with a longer hold period. A longer hold period generally suggests a higher rate of owner occupation and a less transient population base.
Many suburbs with a short hold period (less than three years) tend to be investment driven with home buyers seeking short term gains from their property purchase. This ‘pick and flick’ strategy, where property investors target an area with the objective of buying and selling to realise a short term capital gain has been popular amongst investors targeting master planned estates around Australia.
Some property investors will follow particular developers, relying on their track record of quality development and price appreciation. In addition, most investors will be aware that price rises are generally factored into the land release schedule, which tends to have positive flow-on affect for existing dwellings.
Savvy property investors also know that these developers do their homework. Master planned communities are generally located in population growth corridors where demand for housing is likely to remain high. In addition, these developments are often accompanied by large infrastructure projects and amenity upgrades; all key drivers of capital growth.
There can be some pitfalls to such a short term strategy however:
- Selling a property within a 12 month period disqualifies the seller from receiving a 50% capital gain discount, so not many investors will ‘flick’ within twelve months;
- Entry and exits costs are relatively high and spread over a very short period;
- Exit strategies are reliant on market conditions, sometimes a quick sale won’t be possible or market conditions may have changed such that an expected capital gain becomes a capital loss;
- There are few depreciation benefits.
Mining and agricultural towns have also historically recorded relatively short hold periods, partly due to the cyclical nature of resource markets but also due to the high levels of investment from short term investors. Shortages of accommodation and rising commodity prices have been the typical drivers of rapid price growth in these regional markets and many short term investors have made substantial profits over a short period of time.
More recently hold periods in Australia's resource intensive regions have become longer due to the slowdown in this sector during the global economic crisis. With demand once again rising for Australian commodities, investors are starting to show renewed interest in these resource-driven markets which is likely to once again reflect lower hold periods for these regions over the coming year.
Posts
