Several weeks after lockdown measures have been passed due to the ongoing COVD-19 pandemic, how is the Melbourne property market faring in terms of growth and overall activity?
Since businesses were put to a grinding halt in order to properly implement social distancing protocols, the Australian government has spent over $200 billion in its three stimulus packages to help support jobs and stabilise the economy.
Further, a number of state and territory governments have worked through their respective housing support and rental relief measures for landlords and tenants to alleviate stress.
The Victorian government, in particular, has made it so that the $20,000 First Home Owners Grant will remain available for people buying or building a new home in regional Victoria and will be extended for an extra 12 months in another measure to support Victorians through the coronavirus pandemic.
This legislation gives more Victorians the opportunity to live locally and enter the market for the first time, while also providing certainty to the regional construction industry as the state deals with the impacts of coronavirus, it was reported.
In 2017, the Victorian government had doubled the regional First Home Owner Grant available in the state from $10,000 to $20,000 to tackle housing affordability in the state.
To be eligible for the grant, the purchaser or purchasers must be first home buyers buying or building a property valued at $750,000 or less and it must be used as the principal place of residence for 12 continuous months following settlement.
The regional grant is part of the “Homes for Victorians” package, which also offers a $10,000 First Home Owner Grant for eligible purchases in metropolitan Melbourne and offers stamp duty exemptions and discounts for new homes up to $750,000.
Ultimately, experts are confident that the property sector can get Australia out of its “coronavirus cocoon”.
According to Propertyology’s head of research Simon Pressley, real estate successfully led the rebound out of Australia’s last recession almost three decades ago, and again 12 years ago during the global financial crisis – the biggest economic downturn in history.
At the moment, Cohen Handler’s co-founder and director Simon Cohen believes that there remain plenty of good deals to be done despite COVID-19’s grind on the economy.
According to him, vendors and property owners are a lot more motivated to do deals now, but there are very few properties on the market because the valuers aren’t knocking on your door to foreclose anymore; you’ve got three, or six or 12 months of free mortgage repayments; and interest rates are at a record low.
As a result, anyone who is selling up, regardless of the reason, is motivated to do so. Thus, buyers could be up for some of the best deals, with discounts ranging from 10 per cent to 30 per cent.
“Blue-chip property never really crashes – it’s not like the stock market,” he highlighted.
“If you see [an] opportunity, take it and run because the second confidence comes back – and confidence comes back very quickly – you don’t want to be trying to jump in when everyone else is jumping in. Right now you can really pick, have your choice of what’s out there.”
Mr Cohen advised home buyers to chase capital growth right now in order to make the most out of the eventual recovery and rise of the property market.
“I think yield will be good because you are going to be buying properties cheaper, but the upside by getting a killer deal is still, for me, the most exciting thing. You want to say you bought it for $1.5 (million) and you and I are talking in six months and you’ve just been offered $2.2 (million) – that’s what gets me excited,” according to him.
Detached houses in every capital city held strong or increased in value over the past quarter, according to Domain.
Sydney saw the strongest gains in house prices over the quarter at 2.6 per cent, followed by Hobart (2.2 per cent), Melbourne (2 per cent), Darwin (1.2 per cent), Brisbane (0.6 per cent) and Canberra (0.3 per cent).
Adelaide and saw house prices remain steady quarter-on-quarter.
Melbourne property values, in particular, were at a record high by the end of the quarter, with houses in the Victoria capital seeing growth for four consecutive quarters.
Houses saw double-digit gains year-on-year for the first time since 2017, while unit prices achieved the same for the first time in over a decade.
However, these results are expected to be short-lived. With most of the reporting period taking place prior to the government’s social distancing regulations, including the banning of public auctions and open homes, Domain anticipated that future housing value figures won’t look as strong.
“The uncertainty of the market forced vendors to drop asking prices, one in 10 listings had a price revision down in the first three months of 2020, compared to only 3 per cent in the final quarter of 2019,” Domain claimed.
“This peaked at 13 per cent in March. These early signs suggest a broader market slowdown is anticipated as vendors seek a timely sale in fear of what may be ahead.”
According to Domain’s data, new listings in Melbourne have dropped by 11 per cent between mid-March and mid-April.
“The rapid cautionary response from sellers will be counterbalanced against a drop in buyer demand. This should result in property prices faring better than transactions in the months ahead,” Domain said.
Meanwhile, in terms of unit prices, Adelaide and Perth saw gains of 4.2 per cent and 1.6 per cent, respectively.
Sydney’s market saw a 2.7 per cent rise for units, while units in Hobart held steady over the quarter. All other markets saw drops in the value of units.
The strong property price growth before the outbreak of COVID-19 essentially gives investors a snapshot of what market conditions will be like once the pandemic passes, according to CoreLogic’s head of research Eliza Owen.
CoreLogic’s latest data showed that, nationally, the portion of profit-making sales in the December quarter rose to 88.7 per cent, up from 87.4 per cent in the September quarter, while the total value of gross profit derived from resold dwellings was $22.5 billion, up 20.3 per cent from $18.7 billion in the September quarter.
Losses totalled $766 million in the December quarter, which is 0.16 per cent larger than losses in the previous quarter.
Ms Owen said: “The trends in profit- and loss-making resales are a reflection of recent market conditions. From June 2019 to February 2020, the Sydney and Melbourne housing markets experienced a remarkably strong rebound from the previous downswing, with Melbourne dwelling values even reaching a record high by February.”
Ultimately, this current economic downturn is likely to be temporary, with activity starting to resume once the virus is contained, according to her.
Whether it be in six or 24 months’ time, she said the economy “may return to a state where property transactions and prices reflect the fundamentals of the Australian economy, as opposed to the current structural changes taking place”.
Mr Pressley shared the sentiment, explaining that once we are through the crisis, the property market will return to business as usual.
“The other side, it largely looks like how Australia was positioned before this started. To picture that, think back to the middle of last year with the end of 2019, early 2020, with large parts of Australia running at double-digit price growth,” he said.
“They are the fundamentals because credit is cheap, it is available, housing supply is tight, building approvals are low. When we come out [on] the other side, those things will still be there with a $213 billion dollar stimulus.”
Moving forward, low-interest rates and mortgage repayment relief measures could “insulate” residential property prices from a looming “plunge” in housing market activity, according to CoreLogic.
According to CoreLogic’s latest Auction Market Preview, for the final week of April, ending 3 May 2020, the combined capital city auction market is expected to see a slight increase in auction volumes, to 544, following last week’s drop as the nation stopped to commemorate Anzac Day.
The lower volumes last week can also be attributed to the continued challenges around social distancing, with only 413 auctions held during the previous week.
“While this week’s scheduled numbers are set to increase, with 544 properties expected to go to auction, volumes are substantially lower than what we would usually see,” CoreLogic said.
There are 184 Melbourne homes scheduled for auction this week, up from the 144 over the previous week. Meanwhile, Sydney is expected to be the busiest city for auctions for another week, with 254 properties scheduled to go under the hammer, up from the 192 held last week.
Adelaide, Brisbane and Perth are all expected to see a higher number of auctions, while scheduled volumes are lower in Canberra. There were no auctions in Tasmania.
Going forward, CoreLogic said that it’s likely the number of scheduled auctions will remain substantially lower than normal, at least until social distancing policies are lifted and on-site auctions can resume.
“With a sharp reduction in scheduled auctions, we could see the withdrawn rate start to normalise, which is likely to have a positive flow-on [effect] to the clearance rates, which has been dragged lower over the past month due to a surge in auction withdrawals, which are counted as unsold in the clearance rate statistics.”
CBA chief economist Stephen Halmarick said that the economic shutdown will impact consumer spending in a variety of categories, with the intention to purchase property not immune to the downside.
According to him, looking at home buying intentions series in March 2020, people were feeling confident with spending intentions sitting close to record highs. Since then, they have seen turnover in the housing market decline significantly after public open houses and auctions were banned, with rising job insecurity also being a factor.
Commbank explained that under normal circumstances “the RBA’s substantial monetary policy easing over March has seen mortgage interest rates fall, and this would be expected to support buying intentions”.
According to Domain economist Trent Wiltshire, subdued population growth, particularly net over search migration (NOM), would add to housing market headwinds.
“Lower immigration means reduced demand for property, which will put downward pressure on prices,” he said.
Lower population growth, rising unemployment, concerns about job security, expectations of price falls, larger households due to people wanting to save money, some forced sales, and restrictions on real estate transactions are other factors that will contribute to declining demand and, thus, falling prices.
Property sales are likely to decline by even more than prices, Mr Wiltshire said.
The impact of these factors would ultimately be varied from state to state, with Sydney and Melbourne to be “hit hardest”.
“In recent years, Sydney has tended to attract a large number of migrants, but then lose residents to other cities and regions… So, it’s possible that Sydney and Melbourne will be hit hardest by the reduction in migrants, which would mean a larger fall in property prices in Australia’s two largest cities,” he said.
The dip in population growth may also result in housing construction activity waning.
“Housing construction looked to be turning around in late 2019, with approvals and commencements bottoming out and property prices, a leading indicator of construction activity, rising, but weak population growth in the year ahead will likely mean low rates of home building for at least the next year,” he said.
As the construction sector is currently lagging behind, professionals are now calling to fast track projects to kick-start the sector.
Denita Wawn, Master Builders Australia’s CEO said that the 5.3 per cent fall in the number of building and construction industry jobs is alarming and reinforces the need for immediate government stimulus measures.
“Stimulus can’t wait because jobs are being lost now, and we need to protect the livelihoods of the 1.2 million people employed by the industry around the country and the viability of the nearly 400,000 building and construction businesses that pay their wages,” she said.
While the first stimulus package of $17.6 billion should directly help the small and medium-sized businesses that are turning over less than $50 million, due to payments of $2,000 to $25,000 as well as wage subsidies to hire and retain apprentices, the numbers indicate it has not gone far enough.
Results of a new Master Builders survey of its members shows that 73 percent have seen a substantial fall in forward work on their books of 40 per cent on average, according to Ms Wawn.
“Governments must act now because while many builders and tradies are getting by on work that commenced prior to the onset of COVID-19, that work is fast running out and new orders have fallen off a cliff,” she said.
As the real estate industry works to continue thriving amid uncertain times, professionals are starting to craft a “new normal”, creating new ways of engaging with customers as well as maintaining social distances.
OSK Property has launched a series of virtual tours of completed apartments in collaboration with CBRE and investor networks. They have also digitised the contracts process with e-contracts, set up virtual appointments with agents to ferry brochures, floor plans and materials boards directly to them, and host private one-to-one appointments.
According to OSK Property sales and marketing director Scott Jessop, these offers will ultimately aid the customer experience and allow developers to continue their businesses.
“At the end of the day, we are here to support our customers and what we are hearing is that people want more options when purchasing and enquiring about property – in the current environment and even before COVID-19,” he said.
“It is a simple fact that customers live their lives online more than ever and so, as a developer, we have sought to find ways to bring our apartments to them in new ways.”
The new technology has helped Melbourne Square on its first round of settlements, garnering over $6.5 million in sales despite the impacts of COVID-19. At the moment, only a few apartments remain for sale.
CBRE director Andrew Leoncelli explained that investors who take advantage of Melbourne’s real estate market now could come out ahead, mainly due to its track record in economic downturns.
“A mortgage has never been cheaper in Australia in living history and people with cash deposits are leveraging that and still purchasing property,” he said.
“Foreign buyers stand to save up to 30 per cent compared to what they would have paid two years ago, given the fall in the Australian dollar. The Australian property market is still open for business.”
On a similar note, Mr Cohen said that, contrary to the doom-and-gloom headlines, the property market remains “really, really strong”.
“In fact, I went to an auction (recently) where the guide was $5.5 million and it sold for $6,810,000. It just shows the strength of what’s going on out there,” he said.
Ultimately, Mr Cohen believes that the property market will be under no threat of total collapse.
According to Mr Cohen: “When you listen to economists and people from the bank talk, they think that interest rates are going to drop again… If you’re like me and you’ve worked through different markets including the GFC, you’ve already seen these things in Sydney.”
“The great thing about property where we’re different to the rest of the world is that our property prices don’t plummet like shares do… When people are getting no money in the bank, property seems to be a safe and high return option for them.”
Moving forward, the professional sector of the property market will be the lifeline of home owners and the market itself.
Apart from helping investors navigate the changing landscape, access and relationships with professionals will be the two most important keys to thriving in the property market right now as they may lead you to opportunities that will otherwise be buried under the cloud of uncertainties and fear.
“Build up relationships with people who are like-minded, who appreciate the job you do. “It’s those introductions, those leads, those referrals that they give you that can help you really start off on the right foot,” Mr Cohen highlighted.
“If it’s a mortgage broker you’re dealing with, they not only speed up the process, but they can also get their client into something they couldn’t find on their own at a price of less than what they would’ve paid for themselves. It becomes a team effort where everyone wins, and in business, I think an outcome where everyone wins is a phenomenal outcome.
“Strong and tight relationships give us a huge competitive edge.”
Montmorency ranked 434th for affordability with a high median house price of $839,000, but that was more than offset by its number one rating for liveability, with excellent public transport, four local schools and childcare centres, and 19 licensed venues, among other attributes.
Showing all of Melbourne’s regions have their standouts,in the west is ranked second for home buyers, with a considerably more affordable median price of $618,500 combined with an attractive liveability ranking of 76 which should certainly attract attention.
Gowanbrae is third on the latest list, followed by Watsonia North which was number one six months ago. Then there’s Noble Park North in fifth spot, another more affordable suburb at $606,000 which equates to about $650 a week in repayments but it is that little further out at 25 kilometres.
According to People’s Choice chief executive Steve Laidlaw: “That’s the great strength of this research – you can compare areas on more than just price. Some suburbs have high prices and high liveability, but right next to them on the list can be underappreciated areas that are very worthy of attention,” he said.
For those looking to buy an apartment instead of a house, Ormond in the city’s south-east topped the list as the fifth-highest suburb for liveability and a palatable ranking of 142 for affordability.
With a median sale price which has dropped recently to $525,000, Ormond is the most affordable suburb in our top 10 but still ticks a lot of boxes with good results for schools, transport, local facilities, and public safety – important factors when it comes to quality of life.
Other suburbs in the east and southeast dominate when it comes to units, with Ormond followed by Caulfield North, Hawthorn East, Mont Albert and Hughesdale, locations which have provided owners with an average 3.3 per cent compound annual growth rate over the past 10 years.
Further, first home buyers are presented affordable entry points across Melbourne, with house prices ranging from $750,000 and less.
Delahey have the best mix of affordability and livability for home buyers planning to take advantage of the federal government’s First Home Loan Deposit Scheme., Burnside Heights and
These areas were judged off affordability and liveability factors, including access to a variety of public transport routes, driveability, crime rates, schools, economic prospects, local services and an analysis on how settled the community is.
“Of the suburbs which qualify for the scheme, the top three – Sydenham, Burnside Heights and Delahey – are all in the west and all about 20 kilometres from the GPO, but Sydenham stands out for its excellent public transport options and number of licensed venues, which reflect its retail and social facets,” Mr Laidlaw said.
“Burnside Heights is helped into second, thanks to a lower crime rate, while Delahey enjoys a more affordable median price of $545,000.”
The research has revealed some hidden spots that investors might not be aware of that strike the balance between liveability and affordability.
“The coronavirus has certainly affected real estate, but now is an excellent time to research the market for when things return to something more normal. And that’s the great power of the People’s Choice of Housing – it allows you to compare and contrast suburbs at a much deeper level, to help you make the right decision for you,” he concluded.