He says he will hold on to the property until the market improves. The off-the-plan townhouse has dropped in value by between $80,000 and $90,000 in the past 18 months. "It's not the money, it's more of a moral thing," he says. "I just can't believe it. I will trust my gut instincts next time."

Upfront costs lost

As you can see from the table, someone who bought in Sydney at the median house price of $1.03 million in December 2017 and sold in June 2019 at $928,350 (which assumes a 10 per cent fall in house prices) would be $194,467 worse off after $51,575 principal repayments, losing the deposit and having spent about $42,000 on stamp duty and $49,000 on lenders mortgage insurance.

By contrast, someone who bought at the median house price of $745,000 in December 2013 and sold in December 2017 would have $290,246 remaining after paying out the loan. But after repayments and upfront costs, the actual profit would be $118,877.

Someone who bought in Melbourne at the median house price of $760,000 in December 2017 and sold in June 2019 at $684,000 (which assumes a 10 per cent fall in house prices) would be $152,842 worse off after principal repayments, losing the deposit and having spent about $40,000 on stamp duty and $36,000 on lenders mortgage insurance.

Property buyers and investors need to reassess their strategies as market conditions change.

By contrast, someone who bought at the median house price of $561,000 in December 2013 and sold in December 2017 would have $203,495 remaining after paying out the loan. But after repayments and upfront costs, the actual profit would be $67,569.

"People who bought at the peak of the market could be in a financial noose," warns Sally Tindall, from RateCity, which monitors prices and financial product costs. The analysis is based on official statistics and uses market outlooks by leading market commentators, such as investment bank Morgan Stanley.


"People who live in Sydney and Melbourne have grown very used to seeing property values skyrocket," says Tindall. "But with the boom well and truly behind us, the house price slump is starting to feel very real."

It also assumes the seller can find a buyer, which is increasingly difficult for apartment buyers in Brisbane and the central business districts of Melbourne and Sydney.

These estimates assume 5 per cent deposit, stamp duty and lenders mortgage insurance.

Loan pressures

Borrowers who purchased with a small deposit are also likely to find it hard to refinance because lenders are under intense pressure to lend more prudently and typically require minimum deposits of between 20 per cent and 30 per cent.

Sellers are under pressure from falling demand, which means they might have to be flexible about accepting a lower price, and be prepared to wait longer for a buyer as auction clearance rates fall to about 50 per cent.

"This is even tougher for off-the-plan buyers," says Anna Porter, a property valuer, buyers' agent and principal of Suburbanite, a property advisory company. "They cannot manufacturer any meaningful additional value by renovation or cosmetic changes because the property is already brand-new," Porter says.


"The house price slump is starting to feel very real." Henry Zwartz

"This creates more risk when selling, particularly in an area where there are a lot of other new apartments, because there is additional downward pressure on the price."

For example, two-bedroom apartments in former hot spots around Brisbane are selling for almost 40 per cent below their 2010 purchase prices, according to analysis by SQM Research.

Separate research by Development Finance Partners found mortgage revaluations of second-hand homes in inner Brisbane are between 20 per cent and 30 per cent lower than the prices they originally exchanged for, one more sign of falling demand and over-supply in the Queensland capital.

DFP, which provides commercial loans to residential developers, warns this is having a knock-on effect for older apartments and townhouses as new supply comes on the market.

Sellers are under pressure from falling demand, which means they might have to be flexible about accepting a lower price, and be prepared to wait longer for a buyer as auction clearance rates fall to about 50 per cent. Jessica Shapiro

There are similar property pipelines in inner suburbs of Melbourne and Sydney.

Stay or sell


Property owners must decide whether to tough it out and hold on to the property, or sell.

A rising population, growing economy and strong employment are likely to soak up excess supply and gradually improve the outlook for property, if past economic conditions are any guide to the future.

There are many examples in Australia, UK and the US where sharp price corrections have turnedover the longer term, such as the bounce-back after the onset of the global financial crisis that started in 2008.

But expert independent market commentators – from price monitoring specialist CoreLogic through to investment bank Morgan Stanley – predict the slowdown will continue for the foreseeable future.

"Will it recover, or continue to go backwards, what are the fundamentals?" Porter recommends sellers ask.

"Can you afford to hold it vacant for a while until you find a buyer or tenant? If you can, what is the opportunity cost of holding the property compared to crystallising the loss and reinvesting in another market where you might be able to make more wealth."

Many sellers with negative equity – which is when the value of a property falls below the outstanding amount of a mortgage secured on it – could also have to negotiate with their lender about how to pay their debt.

Property owners must decide whether to tough it out and hold on to the property, or sell. imamember

That might involve providing other security to cover the balance.

Porter says the high costs of advertising, removal, relocation and stamp duty mean that it is usually a better option to hold on to the property.

The decisions are even tougher for a investor with a property in a self-managed super fund because contribution caps could limit the amount available to subsidise repayments, which could force a fire sale.