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The Top Melbourne Suburb, where one in three Apartments are selling at a loss…

Richard Swanson faced a tough choice: sell the South Yarra investment property he had owned for six years for a loss, or hold on and hope it recovered in value.

He chose to hold. That was five years ago and since then prices have only fallen further. After about 11 years, he has just sold the apartment for $156,000 less than he paid.

Melbourne Apartments selling for a loss

This is the puzzle at the heart of Melbourne’s housing affordability crisis: property prices have soared over the long term, but not for all properties. There aren’t enough homes, but there are too many of the wrong type of home. Young families have increasingly been locked out of home ownership, but there are few willing buyers for well-located, entry-priced apartments.

The Victorian government this week unveiled fresh plans to increase housing density in areas close to transport and amenities, along with a range of proposals to unlock land in the outer suburbs, speed up subdivisions and offer relief on stamp duty to address affordability.

Of the 25 new activity centres, eight are in the City of Stonnington, one of the most desirable areas to live in Melbourne.

And yet, that puzzle: of the homes that sold in Stonnington in the June quarter, 25.8 per cent traded at a loss, figures from research firm CoreLogic show. Stonnington runs second to the Melbourne City Council area, where 39 per cent lost money.

Split by property type, 32.4 per cent of Stonnington apartments that sold in the June quarter lost money. Only 2.1 per cent of houses met the same fate.

Since nearly one in three apartment sellers in Stonnington are losing money, stories like Swanson’s are not unusual, even if many owners are reluctant to speak publicly.

The Beechworth-based public servant, 63, and his wife bought their two-bedroom apartment off the plan about 11 years ago for $691,000. They will settle to the new buyer on Monday for $535,000.

Taking into account holding costs, he estimates conservatively they have lost $200,000.

The property is near South Yarra train station, where a cluster of high-density apartment blocks have been built. It was rented out but the tenant relocated after the COVID-19 pandemic hit. Then the apartment was competing for tenants with its similar neighbours.

Once interest rates jumped, the rent no longer covered the mortgage repayments. Then the Victorian government increased land tax on second home owners.

“It’s a lovely apartment in a lovely complex where we are in South Yarra but what we weren’t aware of is at the same time, there was a lot of other developers who were also building lots of apartments,” Swanson said.

“I think the apartment market is overcrowded. I know there’s a lot of people needing rental accommodation … it’s a catch-22 in a way.”

He sold through Woodards South Yarra, which handles sales of a mix of properties, from apartment towers and art deco unit blocks to multimillion-dollar houses. Director Luke Piccolo says large two-bedroom boutique apartments can cost close to $2 million.

There are much more affordable options in the Forest Hill precinct near the train station, where some towers have had cladding issues, water issues, or lesser-quality builds.

Buyers could associate some of these homes with uncertainty and risk if they had heard they might have to pay for cladding repair or they might face a drop in value, Piccolo said.

“Some first home buyers have bought a one-bedroom apartment for $450,000 to $500,000 and it’s now worth in the high $300,000s or $350,000,” he said.

“Losing $100,000 on your first purchase sets people back a long way, a very long way.”

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