How will Covid 19 affect our property markets and housing prices
You may have been concerned about the impact of COVID19 on property values. And recently economists and property experts have weighed in with their views as well.
For example, CBA Economics stated last week that property price declines are “inevitable” and has forecast that prices will fall by circa 10% in Melbourne and Sydney over the next 6 months.
We have been fielding plenty of questions from clients and friends alike who are concerned their major asset and/or investments will be impacted in the coming months. Here are some of the most frequently asked questions and our responses.
1. How will the coronavirus affect our economy
With current COVID19 restrictions having a ripple effect through many facets of our economy, economists generally expect the economy to contract by 1.5% in 2020-21 with growth not forecast to rebound until the end of 2021.
Unemployment rate is expected to peak at 10%; and would have been higher if not government support measures.
All of these have a flow-on effect on the property markets but from a property investment perspective it’s still incredibly difficult to make predictions about the future.
What we can expect is that property transaction levels will likely be lower in coming months and consequently there will be pent up demand when restrictions are eased in the second half of the year.
2. What will be the short-term effects of coronavirus on Australia’s housing markets
Clearly, our housing markets won’t be immune to the Coronavirus economic fallout, but the impact on property values will depend on how long it takes to contain the virus.
Transaction levels are likely to be significantly impacted over the next two months, particularly with restrictions in place limiting people’s ability to leave their homes. But this doesn’t mean property values will fall significantly over the next few months. What little drop in value in that time will simply be a reflection of the market lockdown.
The Australian residential property market has had a solid history of strong recovery after negative economic shocks.
Households and property investors whose incomes remain stable and secure will be able to take advantage of historically low rates. If you are eligible, schedule a call here and let’s get you prepared to take advantage of stronger levels of price growth in the medium term.
3. How will the Coronavius impact the Sydney property market?
Sydney was the strongest property market at the end of 2019 but the coronavirus has made forecasts of double digit capital growth a pipedream. The length of unemployment and the fall in consumer confidence will determine what happens to Sydney property.
With the stock market being shattered, Sydney’s more exclusive properties will suffer as normally happens when the stock market collapses. Similarly properties in the outer suburbs where job losses are more prominent will be more negatively impacted.
We expect well located apartments and A-grade homes in Sydney’s middle ring suburbs to hold their value or experience ~ 5% fall.
We’re helping clients evaluate what’s possible for their property today. If you’re considering refinancing to get a better rate or terms, to access cash rebates or release equity, don’t hesitate to contact us today.
4. How will Coronavirus impact the Melbourne property market?
The Melbourne property market, along with Sydney, has always been the auction capital of Australia. Now with a ban on public auctions, it doesn’t mean property transactions won’t occur. It just means more properties will revert to being sold via private treaty.
That said, it will mean new sellers may hold off listing their properties for sale and those who do not have an urgency to sell may decide to hold off marketing their properties till things settle down.
Melbourne’s more expensive properties and those in the outer suburbs will suffer the most, while well-located townhouses, villa units and A grade homes should hold their values well, as most Melbourne residents will still have jobs and won’t be selling up because of Coronavirus. Melbourne real estate has always been relatively resilient and held up well during previous economic downturns such as the Global Financial Crisis and other stock market downturns.
If you have Melbourne property as part of your portfolio or are thinking of opportunities in Melbourne, know that some banks have lending restrictions against certain postcodes especially for off-the-plan properties.
Speak to us to find out what’s still possible
5. How will Coronavirus impact the Brisbane property market?
The Queensland property market is highly exposed to the Chinese economy, in particular tourism, education and foreign property purchases.
Brisbane though should hold up better relative to the Gold Coast, Sunshine Coast or regional Queensland.
That said, with the recent oversupply of new and off-the-plan properties, the banks are cautious and reluctant to lend against certain Brisbane postcodes and will reduce their exposure to off the plan properties in general through lower loan to value ratios.
If you have earmarked a buying opportunity in Brisbane or Queensland, don’t hesitate to contact us to discuss strategic financing options.
6. What will happen to property markets in the long term?
In the short term property values will reflect the impact of the lockdown measures on income, employment, borrowing capacity and credit availability. Clearly some sectors will be affected more than others.
However, whilst our economy may be facing challenges our property markets are underpinned by the fact that 70% of property owners are homeowners who are there for the long term.
Furthermore the current share market volatility will make some investors look to real estate in a flight to quality - and real estate has always stood the test of time.
Currently we’re assisting clients access better terms, rates and even cash rebates. Book a free call to check if there’s a better deal out there for you.
7. If you can’t have auctions or public open for inspections what does that mean for a property market?
Public auctions may be temporarily banned, but private treaties are still going ahead.
With the social distancing recommendations, property inspections are now occurring virtually or by private appointments with only 2 people.
This is an opportune time to negotiate hard but don’t be mistaken - not all vendors are highly motivated, and even though property values could drop a little further as the coronavirus fallout widens, well located properties or great homes will continue to hold up in value.
Property investments are long term. So if a property suits your long term strategy then now is as good a time as any to buy it.
Are you pre-approved ready to go? Contact us to reassess your options.
8. What’s happening in the property market at the moment?
Right now property transactions are still occuring. Buyers are still buying, and sellers are still selling.
At times of uncertainty like this, it’s the discretionary buyer who is able to sit on the sidelines waiting for the right opportunity to come along. And there are many more people who have to buy or sell.
Whilst property markets might slow down in the short term, once the lockdown is removed, activity will resume when general consumer confidence is back.
There are opportunities to be had now if you’re a discretionary buyer. If you’d like to be in a position to take advantage of this opportunity, schedule a time to speak to us about your financing options.
9. Can I still sell my house?
Real estate agents, buyers’ agents and the rest of the market have adapted to the new restrictions. The auction market may have temporarily closed, but private inspections are now the norm and sellers can still sell via private treaty as always.
And it’s really only been the Melbourne and Sydney property markets that have a high percentage of auction sales.
However if you don’t have to sell and haven’t started the process, there could be an alternative to get you onto a better rate and terms to weather out the current storm.
If this is of interest, let’s chat.
10. Won’t rising unemployment kill our property markets?
There is no doubt that financial uncertainty, and in particular job uncertainty, negatively impacts property markets.
This is an area the government is actively managing with the latest financial assistance packages for businesses and individuals. Some sectors will feel it more than others - for example tourism, hospitality and entertainment are all experiencing unprecedented levels of unemployment - however jobs in health services and government employment are expected to grow.
Some banks are now accepting Jobkeeper payments as income. Speak to us to find out whether you have the best loan possible to help you weather the storm.
11. Is now a good time to buy property?
It pays to take a long term view, especially when it comes to property.
It’s normal to be cautious in a crisis. And you should definitely make sure you are comfortable with all the usual property fundamentals. See our checklist here if you’re unsure.
Now is also the best time to get prepared to take advantage of the opportunities that the market will offer. Rates are at an all-time low. Banks are still lending to good credits even though the process is taking more time - and there will be people who must sell.
If you’d like to discuss your financing options, to get yourself set up for buying opportunities, book in some time here.
12. I’ve read that tenants don’t have to pay rent for 6 months - is that true?
That’s not true.
What is true is that state and territory leaders have agreed to a 6-month moratorium on evictions for tenants in financial distress but that does not mean they do not have to pay rent.
NSW has announced its $440 million relief package for renters and landlords affected by the COVID19 restrictions which will be much required for stability and certainty for these private tenants and landlords respectively. It is expected that $220 million of this package will be for residential renters and landlords.
You can read more about this here: https://www.abc.net.au/news/2020-04-13/nsw-coronavirus-to-announce-440-million-dollar-rental-assistance/12143646
13. What is the rental relief scheme?
Financial support has now been allocated to residential renters and landlords. You can find out more from your state government authority. Check out what’s available for NSW here:
14. How should I respond if I’m asked to reduce my tenant’s rent?
In NSW. If a tenant can’t pay their rent due to COVID-19 after the 60-day stop has ended, the landlord must try to negotiate a reduced rent with the tenant.
Fair Trading has dispute resolution officers available to help landlords, managing agents and tenants negotiate temporary changes in rental arrangements, if agreement cannot be reached between parties.
Check out guidance from NSW Service here: https://www.service.nsw.gov.au/transaction/residential-tenancy-support-package
16. Will my landlord insurance cover rental losses because of Covid19?
It should be business as usual for your landlord insurance policy. Pandemics do not alter any of the existing terms and conditions but do check your individual policy or with your insurance broker to confirm.
Landlord insurance policies are black and white.
And all are governed by a Product Disclosure Statement (PDS) which outlines exactly what is and isn’t covered.
17. Should I agree to reducing the tenants rent?
While it is important to be considerate, it’s even more important to stay within the guidance of rental support packages that are now on offer from the state governments.
For example before you enter into negotiations with your tenant, do check out guidance provided by each of the state service organisations. For example in NSW, go here: https://www.abc.net.au/news/2020-04-13/nsw-coronavirus-to-announce-440-million-dollar-rental-assistance/12143646
18. What will happen to vacancy rates with unemployment rising?
With unemployment forecast to rise to 10%, it is reasonable to question the link to vacancy rates and whether additional precautions need to be taken when considering property investments.
Ultimately there will be less movement in the rental markets in the next 3-6 months as state and territory governments are proposing a range of measures to help assist people in financial hardship which will help many pay their rents and effectively put a moratorium on evictions.
As with all property investment considerations, property fundamentals which are long term have to be taken into consideration. Despite a short to medium term negative impact the property investment still has to stack up over your investment horizon.
If you need help assessing this, book some time to speak to one of our investment consultants
19. Can my property manager and prospective buyers/tenants still physically inspect my property?
Public openings for inspections are currently not allowed. Prospective buyers and tenants must arrange private inspections and only two people are allowed inside a property at a time.
Property managers can still inspect your property to conduct their regular “routine inspections”, but they will generally ask for you not to be present and will take special precautions by wearing gloves, not touch anything or sanitising anything they must touch like door handles
As always, landlords must give tenants 24 hours’ written notice of entry, stating the reason for entry.
20. What if I can’t make my mortgage payments?
We are getting a lot of questions about this. And generally whether mortgage payments would be put on hold.
Most banks are allowing customers to pause their loan repayments for up to six months if they are experiencing financial hardship. However we believe that if you can afford to continue paying, you should.
Here’s why: https://www.sandcastlefinance.com.au/blog/what-it-means-to-put-your-mortgage-on-hold
21. So what should I do in the current market situation?
We’ve been fielding plenty of questions from clients and friends about this and in my opinion, for those who have job security and finances organised, this is a great time to buy a home or investment property at a price that you were unlikely to be able to get a couple of weeks ago when the property markets in big capital cities were booming and there were more buyers around than sellers.
It is likely that many would-be buyers will sit on the sidelines for a little while until things settle down, which means that sellers will be more amenable to accepting offers rather than holding out for a top price.
Remember property is a long term investment. The current market is not a reflection of the long term fundamentals but rather the immediate fall out from the coronavirus restrictions.
There is no doubt there will be opportunities in the market for those who are willing to go against the crowd. Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on.
If this speaks to you, we would love to help you find the best deal around.