PropertyMash.com April Market Update

How has the property market been impacted by the Coronavirus?” – this is the question everyone has been asking for weeks now, and it is, unsurprisingly, the focus of Herron Todd White’s (HTW) most recent month in review report which is the focus of this month’s market review.

An apt way to begin this article is by quoting the report introduction in part:

“You see, depending on your location, property type and price point, the fallout varies. Are you in an area dependent on tourism? Do you have a multi-faceted regional economy? Are first home buyers smelling opportunity, or are local prestige purchasers the most immune to a potential downturn? – HTW April 2020 ‘Month in Review’ Report Introduction

It’s important to go into this coverage understanding exactly the conditions the report was written under. During the time period this report was written — 22/23 April — Australia was in lockdown. Only essential workers were regularly leaving their homes, and the property industry had moved itself online for house inspections and auctions alike. Some locations have seen monumental disturbance to their usual state of affairs, while others have barely registered a ripple. As HTW CEO Gary Brinkworth himself noted, this change has prompted diverse commentary on the future direction on the residential property sector: some are expecting a massive collapse, while others are predicting a slowdown that is quickly overturned once the market returns to normal.

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The property clocks are showing us how the market is faring in a succinct form. In the property clocks below, you’ll notice the amount of areas that have moved into the ‘Declining Market’ phase. You’ll also notice though that a number of areas are still rising — although given this report is based on data that is now almost a month old, it’s likely than many of these markets are now stalled.

HTW Property Clock April - Houses
HTW Property Clock April – Houses
HTW Property Clock April - Apartments
HTW Property Clock April – Apartments
HTW Property Clock April - Houses
HTW Property Clock April - Apartments

Here’s how Australia is faring:

New South Wales

As Australia’s most populous city and the country’s gateway to the world, Sydney has become the epicentre of COVID-19 cases in Australia. The Ruby Princess debacle certainly didn’t help. Now that New South Wales as a whole is beginning to emerge from the lockdown, two things have become clear: the lockdowns are working to reduce cases, but the economic fallout is only beginning to be felt (and, some argue, won’t be fully until the JobKeeper payments run out in September).

Two major indicators, auction clearance rates and new listings, are clearly highlighting the impact of the virus. Auction clearance rates, which often strongly correlate to property price movements, have fallen from above 80% into the 30% range. This has been exacerbated by the number of properties scheduled for auction which have been withdrawn either to be sold via private treaty or taken off the market altogether. A reduction in the number of new listings (down 20.4% from last year) is directly related to sellers hesitance to enter the market when it is so volatile.

Another significant indicator is rental listings throughout Sydney. According to an article on 21 April in The Financial Review, Sydney rental listings were up 15% over the past 12 months as short-term holiday rentals (ie. Airbnb, which is now temporarily banned in the state of NSW) come on to the market along with properties that vendors have withdrawn from sale and are attempting to rent out. Properties that are traditionally rented by immigrants were also put onto the market as the immigration rate fell to almost zero when the borders closed. As a result, the HTW article indicates, Sydney houses have seen a 5.7% reduction in asking rents for the month to 20 April, while units have suffered a 3.7% decrease over the same period.

While these statistics may not yet be showing a decline in values across the Sydney market, they do indicate that the market is beginning the fall. Buyer and seller confidence alike has been shaken by COVID-19, and as HTW reports “evidence we are seeing and hearing from selling agents indicates that values are falling…although not necessarily uniformly within sub-markets”. Inner Sydney, for example, has taken one of the hardest hits from COVID-19. Most of its residents are transient (ie. only live there for short periods or fly in during the week for work), tourists, recent immigrants or ‘upsizers’, who purchase their homes in the region by leveraging heavily — something that is difficult in times of high job insecurity — and who technically don’t have to move and so are more likely to live a little longer in their existing circumstances and defer upgrading for the meantime. Prices in this region are falling much more quickly when compared to areas like the Southern Highlands (which is seeing rental listings fall due to Sydney residents moving away from the city while working remotely) and Tamworth (whose market has remained almost entirely stable).

Across the board, the different sections of Sydney are seeing weakened activity and falling prices. Even the Lower and Upper North Shore prestige markets (homes sell for above $5 million, on average), which generally live in their own sub-market bubble and are often are immune from volatility in the general market, are seeing price falls. The number of listings in these areas has certainly decreased, as seen in most areas and at most price points.

The HTW reports that one area that they believe will bounce back quickly is Byron Bay. Much as we noted in our recent article on why regional cities are becoming the best spots to buy in, HTW notes that “a couple of agents have even speculated that in the long term, Byron Bay’s popularity amongst cashed-up capital city buyers may increase as a result of COVID-19 as people look for safe places to live away from the potential of future, similar pandemics”. While the accuracy of this statement cannot be determined yet, it certainly highlights how the New South Wales property market is likely to change in the next few years.

We also spoke to some Sydney-based agents to see how they felt the market was progressing. It’s easy to look at the data and assume one thing, so they provide valuable insight from the thick of the action, as it is. Anna Ginters, Director of Siri Advisory Group, told us that while there was an impact, the market is certainly bouncing back:

“With the onset of COVID-19 and subsequent dramatic shifts in the economy and our daily lives, we saw an immediate impact on the levels of buyer interest. However with the easing of social restrictions and return of onsite auctions and open inspections (albeit with reduced numbers) the past fortnight has shown consistently strong signs of a returning market,” Ms Ginters said.

“Most interest has been for new and completed apartments throughout Sydney, particularly from the First Home Buyer market who have a superb range of unbeatable projects in Sydney’s inner west and south to choose from. We have also seen even stronger interest in house and land since Easter. In all, encouraging signs for the Sydney market”.

Victoria

Melbourne as a whole has taken the hardest hits from COVID-19 in Victoria. One of the largest falls is directly related to the universities in the city, although the lack of tourism has almost had as much impact in the city as it has in Sydney. There are silver linings for the state as a whole though, putting Victoria in a potentially less precarious situation than some other areas.

An area that relies heavily on tourism and international students, hundreds of units and student accommodation apartments are listed for sale and lease as investors struggle to fill the void and try to replace the regular rent from students who would be otherwise be studying at universities across the CBD. Generally, tenants renting these apartments are younger and are living in a share house situation. Given the recent events of the coronavirus, many have no ongoing job security and are cancelling their leases to move back home with mum and dad. This has caused a spike in vacancy rates and an oversupply of rental stock on the market. Data has shown that areas such as Southbank are seeing more listings where rental listings are up 192% for March this year in comparison to March last year.

However, there is a silver lining: first home buyers. First home buyers with job security who were looking in the property market prior to the pandemic are encouraged to take advantage of the current market conditions as sellers are more open to negotiation. With interest rates at a record low coupled with the government’s First Home Buyer’s grant extended ($10,000 grant for metropolitan homes and $20,000 for newly built regional homes), the current market is favourable to those looking to snap up their first home. If they have enough super, some are also choosing to take the $10,000 and put it towards another long-term investment: their future home.

40Forty Finance director and mortgage broker Will Unkles said he had been “busier than ever” helping first-home buyers with their loans despite the impacts of social distancing on the market: “for the first few weeks [of the crisis], first-home buyers disappeared but those who have a 10% or 20% deposit have now increased”.

Domain data indicates that there are 35 Melbourne suburbs that would see house prices dip below $600,000 if the market fell by 10%. It would put those suburbs well within the sights of first-home buyers, who are eligible for full stamp duty concessions and the First Home Loan Deposit Scheme for homes valued up to $600,000. Mill Park, Belgrave and Heidelberg West were the most expensive suburbs to potentially become affordable for novice property buyers with a 10% drop – with March median house prices of $665,000, $663,000 and $660,000 respectively.

Real Estate Institute of Victoria vice-president Adam Docking said he believed it was unlikely these suburbs would see prices plummet to $600,000 but even if they saw modest price declines, they would attract upsizers away from more affordable areas – giving first-home buyers more choice. 

“When we see a price correction, it opens up more areas to more people – so it also helps the second-home buyers,” Mr Docking said. 

Data is suggesting that areas with new-build homes are exceeding market expectations and in some cases showing growth, due to the first home buyer interest. In the outer south-east region within the growth corridors of the City of Casey and Cardinia, many new estates are coming up that will allow purchasers the options of affordable house and land packages. Geelong and Shepparton are similarly remaining strong, with first home buyer interest buoying the markets there. In Shepparton in particular, HTW notes that “the struggles facing the local property market are a lack of stock coming on to the market [to meet demand] and metro investors having also dried up somewhat”. In these times, those are the type of issues you want to be having.

Queensland

Property markets in Queensland have had a rather mixed response to COVID-19. Some areas have seen little change; others have seen dramatic falls; yet others have seen slight increases. Queensland’s mixed response can be related back to one main factor: different types of buyers. Queensland has a massive disparity in what types of buyers are attracted to different markets: for example, the Sunshine Coast is very attractive to downsizers and investors, with some hotspots of younger residents due to university campuses. The Sunshine Coast has been seeing premiums of 5-10% paid in some areas, while others that were once dependent on tourists are now seeing demand in the form of permanent rentals. Cairns is a tourist city so it primarily attracts investors, and it has seen a number of sale contracts fall over due to uncertainty. Townsville is not a tourism-based area, with most of the city workforce involved in industries such as defence, public administration, health care and education; sectors that have been generally able to adapt and continue working as normal, giving buyers and sellers more confidence.

In Brisbane, the market is slowing down, but has remained mostly stable to date. HTW report that there’s been a noticeable reduction in listings and auctions with agents confirming that vendors are postponing their sales. This is understandable as in times of uncertainty: the confidence of achieving a desired price evaporates, so if an owner can afford to sit and wait this out, they surely will. They went on to note that sale prices are continuing to be at near pre-pandemic levels, which is very encouraging for the long-term view on house prices throughout the city. As the market has progressed, sales continue to transact at fairly healthy prices because there are still a number of buyers active in the market. Among them are those committed to buy due to having recently sold, those who missed out on properties previously or those that are seeing this time as a good opportunity to purchase. Stimulus packages such as Jobseeker and Jobkeeper are helping support households at this stage too, but reports are that this assistance has a shelf life of around six months. If restrictions and other economic limits continue for longer, then problems may arise.

The rental market is similarly remaining stable. There has not been substantive evidence of rents falling or vacancies massively increasing, which is putting the market at odds to many other states. However, enquiries are beginning to slow as potential tenants choose to stay where they currently are, which may have a larger impact in a couple of weeks time.

For the broader Brisbane market, locations and product type heavily reliant upon investor markets are expected to experience the biggest downturn over time. The investor market had already been slow to recover post the royal commission into banking and the current coronavirus climate has compounded the negativity. Declining confidence, rising unemployment and general uncertainty all play their parts in this sector. That said, there’s no substantive or material evidence that investors’ markets have seen price falls as at the time of writing. HTW have noted a slight spike in the number of valuations of homes as investors get their finances in order so they can jump at relative bargains in the property or share markets. Some agents have also reported increased interest from interstate buyers – particularly from Sydney – looking at properties via video walkthroughs and making offers without the benefit of a personal inspection. Many probably see Queensland as carrying less risk.

Onto first homebuyers, and there are some good opportunities at present with accessibly priced property likely to become more available. For those who have secured their finance and are ready to purchase, some excellent options will come their way. As select parts of the market slow down, we expect developers to bring more first home buyer ready options to the market, so a good selection of options in new property for first home buyers will be available.

These sediments were echoed by first home buyer specialist, Troy Sussman, from Your First Home Co: “I have seen a strong increase in the First Home Buyer Market, over the past couple of months. In most cases, FHB are extremely motivated in the $350k to $450k price ranges. A number of government grants, deposit schemes and motivated developers are seeing these FHBs getting into the market, often cheaper than their current rent.”

“The savvy and educated investor, is also grabbing the bull by the horns in the current market. Property is the only asset class being supported by the government. We have the cheapest money ever right now, we have a suppressed, under supplied property market (in certain areas) and a growing population, a balanced budget nationally and government support”.

“The opportunity really is now. This current pandemic is a small hurdle in a long term strategy, it will simply be a blimp on the radar”.

Overall, the Queensland market is staying strong. McGrath’s Head of Projects Queensland, Jo Prince-Gillies said that: “Since the COVID-19 pandemic, we have seen a significant increase of enquiries leading to sales for those seeking quality beachfront and beachside developments.”

“Potential purchasers are showing renewed interest in buying off the plan, as they have the time to plan ahead in the lead up to the move-in date. Many see now as an opportune time to plan for their future by improving the quality of their lifestyle.”

“The pandemic has also allowed many people to reconsider where they work and the ability to work from home rather than traditional workplaces,” she continued. “The general theme is a focus on higher quality luxurious property offered in preferred beachfront locations representing the best lifestyle choice on offer.”

“South East Queensland and the Sunshine Coast in particular are unsurpassed as being amongst the countries best destinations. We expect to see continued interest from inter state and even off shore purchasers seeking out our current pipeline of new projects that would suit the most discerning buyer”, concludes Prince-Gillies.

South Australia

With the highest unemployment rate in the country (6.2%) and extremely low confidence levels, you would expect the South Australian property market to be taking a fall — but it hasn’t yet. The most recent data has not indicated a reduction in price levels. Clearance rates are hovering around 30% in Adelaide, which is consistent with the same period in 2019, however the volume of properties taken to auction has reduced. Additionally the volume in properties coming to the market has dropped sharply, down nearly 40% on the same time last year in the city. This is a reflection on the functionality of the property market as vendors are not willing to take properties to market when they don’t have the option of auction and have the ability for only single person open inspection. Interestingly, agents have indicated that the restrictions on open inspections have created a dynamic where only motivated vendors and purchasers are active, creating greater transparency in the sales process.

However, it’s unlikely that this good news will last for long. Rising unemployment, broad labour market underemployment, banning of auctions and limited open inspections do not equate to market positivity. The prospects of market growth following the trajectory seen in the first quarter of 2020 is unlikely. Motivated vendors and purchasers will see activity remain in the market, however a lower level of properties on the market and and falling prices is a trend we’re likely to see over the short term.

In areas like Mount Gambier, there has been no observable fall in confidence across the property market, but this is another area in which the fall in almost certain. An area that is heavily reliant on tourism and the service industry, Mount Gambier will start to feel the squeeze from closed restaurants and cafes and low numbers of tourists. Already, the number of properties available for rent is increasing and this is partly because many homes that were rented out as short term accommodation or on Airbnb are now being listed as long term rentals. Travel restrictions and the lack of tourism has hit this part of the market hard. The increasing supply of rental properties is likely to result in rental prices falling.

How hard South Australia will be hit in the long-term is something that remains to be seen.

Western Australia

In Perth, as it has across the country, confidence across the residential market has decreased due to the uncertainty created by the pandemic. Agents in many markets have advised Herron Todd White that enquiry rates have dropped with a higher number of offers being received below asking price. The Real Estate Institute of Western Australia (REIWA) showed a 0.5% increase in Perth property prices during March, indicating that prices are remaining stable for now. Property prices within the state recently enjoyed their best quarter in over six years, which may be helping to support the market in the short-term.

However, there is an interesting trend occurring in parts of Perth. Listings on market as reported by numerous agents are decreasing into an undersupply situation in some areas, as sellers shy away from the idea of relocating or disrupting their status quo. This could have a short term, upward impact on values in such localities – bucking the wider state trend.

First home buyers in Western Australia are in a great position if they’re ready to buy. Much of the competition is being driven from the market due to uncertain work situations and having to dip into savings. These purchasers will likely have to wait until their own situation has been resolved or the market starts to recover. Those with a secure job have been recommended to purchase a property now given the decrease in competition from other buyers and investors which tends to deter first home buyers. First home buyer enquiry rates recorded between January and March are higher than recorded last year which shows that they are still going to be active in today’s market, depending on their individual circumstances.

Foreign investment in Western Australia will decrease for the interim period. Compounding the fact that tourism has falling to almost nothing, the Australian government has announced that foreign buyers will now require approval from the Foreign Investment Review Board (FIRB). Thresholds for all property clauses have been reduced to zero, which means this affects all kinds of investments. All contracts entered after 29 March will require an approval and the approval periods have been increased from 30 days to up to six months. This makes foreign investment more difficult and subject to more scrutiny to determine whether the investment will be beneficial for the local market.

Northern Territory

The Northern Territory might just be the safest location in the country, as the area with the lowest number of recorded COVID-19 cases. Strict lockdown measures — which included a ban on travel to remote communities — helped control cases much more quickly in the small population.

HTW reports that leading local sales agents are seeing a stable level of interest for property which was already on the market. Open homes have been replaced by private appointments, with one agent noting that it has led to more qualified buyers coming through and less tyre kickers. There have not been any market reductions which are out of the expected or increased market reductions as a result of the pandemic, which is a positive indicator. Some market sectors have been performing quite poorly due to the wider market forces, but this is similar to every area across the country.

In a positive for the market, long-term residential tenancies have remained relatively firm. Larger agencies have indicated requests for rent reduction remain quite low and that rental arrears have not spiked.

We are yet to see any firm market evidence the pandemic has resulted in lower rents or capital values. The big test will, of course, be how the market bounces back as social restrictions are lifted. The time it takes to re-open the economy will also affect the territory: although about 10% of the population is is a public servant or defence personnel, many will loose out when JobKeeper payments end in September. If the efforts to grow the economy and property market splutter along and hit road blocks such as a second wave of infection, then any confidence which is in the market will evaporate.

Australian Capital Territory

Historically the Canberra residential property market is stable and steady with consistent growth generally occurring year on year. They don’t tend to see the spikes and falls like some other markets due to low unemployment, above average annual incomes and a strong Government and public sector employment base. Most of the population in Canberra is considered “essential personnel”, so while almost everyone has been working from home, most have retained their income sources.

At this stage, the full impact of coronavirus on the local economy — and more specifically the property market — is relatively unknown. Transactions are occurring at all levels and generally agents are reporting that most purchasers are finance ready and able to compete with confidence in the market, according to HTW. Sellers may be adjusting their expectations slightly but this has had minimal impact so far. In autumn the rental market generally stabilizes after higher demand periods in January and February and there have not yet seen any significant changes into this crisis period.

Developers are reporting a slight fall in interest, although this is being bolstered by better, “genuine” enquiries. Only those who are serious are looking at these properties right now, which means that sales are still ticking over, albeit at a slightly reduced rate.

Tasmania

With the highest rate of COVID-19 cases per capita in the country, Tasmania has been put into one of the most tough lockdowns in Australia. However, at this stage property prices are holding strong: HTW reports that while market activity has been subdued, they are not seeing any evidence of price adjustments to date.

The biggest change in Tasmania has been the massive increase in rental properties. With ex-Airbnb properties coming onto the market, prices have begun to fall already. However, many consider this to be good news in areas like Hobart, as it will help to ease the housing shortage in the area temporarily. Tightly held coastal markets like Coles Bay are also seeing properties for rent. Discussions held with local residential property managers suggest that while there have been some tenants asking for rent relief, this has not been widespread, which indicates that rental prices are remaining mostly stable. These are positive outcomes.

In the long-term, the lack of air travel is likely to affect the state. It is very unlikely a sustained recovery will occur until planes can fly in again. The potential loss of Virgin services could also exacerbate the situation. It took many years for the state to recover from the pilots’ strike and there is a fear that the hoped for bounce back once lockdown is lifted may not occur.

Despite the current situation, there remains optimism in the state according to Herron Todd White. They believe that when the virus is contained in Tasmania, the state has the opportunity to build on its clean, green persona. The past few years have already seen climate changers coming to the state to escape the heat in mainly Queensland and Western Australia. To this list, we could expect virus changers to make the move. Tasmania does not have an operational international airport which provides a buffer when that sector of travel finally re-opens.

Written: 27 May 2020

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