How hard has the Australian property market been hit by COVID-19?

New data from the Australian Bureau of Statistics suggests that the residential property market Down Under has been hit hard by the lockdown measures of COVID-19.

au house property spi

Q2 2020 data on residential property values has just been released by the ABS, revealing that the nation’s market declined by 1.8 per cent compared with the previous quarter, with housing markets in Sydney and Melbourne bearing the brunt of the market slump.

The threat of a “doomsday” scenario of falling rents and property values – both residential and commercial – lingers, but many remain confident that this won’t transpire. A glance at the Goodman Group share price, one of the leading names in the Australia 200 index (ASX) of major public corporations, suggests the foundations remain firm. Despite a brief decline in March around the time of the initial lockdown restrictions, the stock has enjoyed sustained growth from April onwards, up from $12.18 in early April to $18.13 at the time of writing.

It’s a far cry from the height of the previous global economic downturn, when the Goodman Group could only sit and watch its share price plummet to depths of $1.25 per share in May 2009.


2020: A different kind of financial crisis?

However, the economic impact of coronavirus has caused a very different issue for the Australian property market this time around. The issue in 2009 was attributed to a lack of capital, while this year’s crisis has occurred due to income falling off a cliff edge. Adrian Kelly, head of the Real Estate Institute of Australia, is confident that this time around the banks “will do what they need to do to keep the market stable”.

In the commercial real estate market, Stockland has only recently managed to sell on two prime commercial centres in Victoria and on the Sunshine Coast, equating to a fee of $250 million on a yield of 7 per cent. Although this is a positive sign that capital continues to flow in the commercial real estate industry, the sale price is a considerable decline on the $329.8 million the pair was valued at in the summer of 2018.

Mortgages hold the key to Australia’s property market in 2021

The short-to-medium-term outlook for Australia’s residential property market largely depends on the appetite for mortgage lending. According to internal data from the CBA, mortgage lending surged significantly in August. Average loan sizes rose solidly last month, too, with the average mortgage size now higher year-on-year.

However, the elephant in the room for the residential market is the impending issue of mortgage deferrals. The Australian Prudential Regulatory Authority enabled banks and lenders to extend mortgage repayment relief during the COVID-19 lockdown measures until March 2021. Some 400,000 property owners are thought to have taken the option to defer repayments, worth up to $167 billion overall.

As the clock ticks closer to March, lenders will commence what Anna Bligh, CEO of the Australian Bankers Association, labelled the “largest ever customer contact process” in the history of the mortgage industry. The Australian Financial Review fears that one in five (80,000) deferred property owners have already started “ghosting” their lenders by ignoring their calls and communications. This issue was confirmed by Westpac CEO Peter King, who admitted there “will be people” that no longer have “enough income to service their loans”.

Economist Jason Murphy fears a two-pronged downward pressure on Australia’s property market in 2021 as a result. The end of mortgage deferrals will eat away at the nation’s disposable income, harming the Australian economy, while forcing several unwanted property sales and pushing property values down as supply overtakes demand. Although property values may have fallen only modestly in Sydney and Melbourne in recent months, these areas will hold their collective breath that the New Year does not bring more damaging after-effects.

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