New research released by proptech company PEXA reveals that over 25% of residential property transactions in Australia’s eastern states in 2022 were funded without a mortgage. Despite high interest rates, these cash purchases amounted to $122.5 billion, representing a significant portion of the total value of residential sale settlements, which stood at $478.6 billion.
PEXA’s Cash Purchases Report provides valuable insights into the funding sources used for property settlements. The report analyzes the regions, property types, and price ranges where purchases without a mortgage were most prevalent. It also outlines the typical profiles of cash buyers. For the purposes of this report, cash purchases are defined as transactions without a mortgage registered on the property title at settlement and may involve alternative finance sources.
Comparing the data from 2022 to the previous year, the trend remained consistent, with $124.8 billion of property being exchanged without a mortgage in 2021. However, this figure represents a significant increase from the $83.6 billion recorded in 2020, indicating a noticeable shift in buyer behavior. This shift could potentially be attributed to the post-COVID market boom.
The research also identified the postcodes with the highest proportion of cash purchases, predominantly located in regional areas favored by older Australians.
Mike Gill, Head of Research at PEXA, emphasized the importance of understanding this often-overlooked segment of the property sector. Given that cash purchases make up more than a quarter of all residential property transactions, it is crucial to consider the substantial cohort of buyers who are unaffected by rising interest rates because they have not taken out a loan.
The study found that cash buyers tended to be older and more likely to purchase properties in regional locations, highlighting the generational divide among borrowers. Younger homeowners typically have larger home loan balances, especially those who recently entered the market. In contrast, many older homeowners have either paid off their mortgages or possess sufficient cash to purchase a retirement home.
Gill also noted that as the Reserve Bank of Australia raises interest rates to curb inflation and slow the economy, the burden falls more heavily on younger Australians, who are more sensitive to rate hikes. Conversely, older generations stand to benefit if they have savings or have paid off their mortgages.
Regional areas in the Eastern States witnessed a disproportionate share of cash purchases
In 2022, regional areas in Queensland saw a significant share of cash purchases, accounting for 65.2% of such transactions, while in New South Wales, the percentage was slightly lower at 56.3%. In contrast, Victoria had a lower proportion of cash purchases in regional areas, with only 36.8% recorded in 2022.
These regions shared several key characteristics, including higher median ages, lower labor force participation rates, and a predominant family structure described by the Australian Bureau of Statistics (ABS) as “couple family without children.”
Interestingly, the median prices for cash purchases in these specific postcodes were notably lower compared to the state averages. Moreover, the family incomes in these areas were below the average due to the higher proportion of retirees residing there.
The top three postcodes in Queensland with the highest percentage of cash purchases were Tara 4421 (78.4%), Russell Island 4181 (76.4%), and Gin Gin 4671 (71.9%).
In New South Wales, the leading postcodes for cash purchases by percentage were Emmaville 2371 (73.3%), Gloucester 2422 (65.2%), and Woombah 2469 (62.5%). Meanwhile, Yarram 3971 (57.5%), Paynesville 3880 (57.1%), and Metung 3904 (56.9%) topped the list in Victoria.
Furthermore, the urban centers experienced the highest transaction values associated with cash purchases, mainly due to the presence of higher-priced properties and larger populations in those postcodes.
In Queensland, postcode 4218, which encompasses Broadbeach, stood out among the eastern states, with a staggering $1.33 billion spent on cash purchases in 2022 alone.
In Sydney, the blue-chip metropolitan postcode 2088 (Mosman) had the highest cash purchase expenditure, while in Melbourne, the top-ranking postcode was 3142 (Toorak).
