As Australia and most parts of the world settle into a “new normal” following the onset of the COVID-19 pandemic, will the Perth property market continue to thrive?
Since businesses were put on hold upon the implementation of lockdown measures to combat the harmful effects of the ongoing health crisis, the government has spent over $200 billion in its three stimulus packages to help support jobs and stabilise the economy.
Marked by a fifth consecutive month of price growth, Perth has successfully sustained the recovery of its property market during the first quarter of 2020.
Data from CoreLogic confirms that Perth’s residential property market was recording a sustained growth trajectory through to the end of March, as government measures tackling the coronavirus outbreak kicked in.
CoreLogic’s Home Value Index revealed a 0.5 per cent rise in house prices for the Western Australian capital in March, with values up 0.9 per cent across the first quarter of 2020.
Chair of Momentum Wealth’s residential investment committee Emma Everett said that the latest figures are further proof that Perth’s property market was recovering.
“This marks the fifth consecutive month of price growth for Perth’s residential property market, confirming as we have suspected for some time that the market was on the right trajectory for a more sustained recovery prior to the COVID-19 health crisis, which we know will have some impact on buying activity in the weeks and months to come,” she said.
Ultimately, despite headwinds, Propertyology’s head of research Simon Pressley, remains confident that the property sector can get Australia out of its “coronavirus cocoon”.
According to him, real estate led the rebound out of Australia’s last recession almost three decades ago and again during the global financial crisis – the biggest economic downturn in history.
“Residential real estate is the one thing which is common to 25.5 million Australians. After all, shelter is an essential commodity… Housing is sage,” Mr Pressley highlighted.
Based on Domain data, over the quarter, 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 Perth saw house prices remain steady quarter-on-quarter.
In terms of unit values, Adelaide and Perth saw gains in their unit prices of 4.2 per cent and 1.6 per cent, respectively, while Sydney’s saw a 2.7 per cent rise for units.
Units in Hobart held steady over the quarter, while all other markets saw drops in the value of units.
According to Domain, data from the first three months to 31 March showed that Australia’s capital city markets got off to a strong start for 2020, but the impact of COVID-19 and the subsequent social distancing measures put in place may hamper the growth of some of these markets.
From 25 March, the federal government introduced restrictions on real estate practices to curb the spread of COVID-19 infections, including the banning of public auctions and open homes.
Both Perth and Darwin’s property markets have faced a slow recovery in recent years and, thus, are likely to be hit hard by the economic fallout of the pandemic.
In Perth, houses flatlined quarter-on-quarter, down by 1 per cent compared with 2019, while in Darwin, units saw the steepest quarterly fall in two years.
Like other markets, Perth and Darwin are set to see a drop in new listings and a slowdown in the overall market as consequences of tanking consumer confidence, a rising jobless rate and more cautious lending practices, which could ultimately lead to a drop in values in the already unsteady markets.
However, CoreLogic’s head of research Tim Lawless said that low-interest rates and mortgage repayment relief measures could “insulate” residential property prices from a looming “plunge” in housing market activity.
“Considering the temporary nature of this crisis, along with unprecedented levels of government stimulus, leniency from lenders for distressed borrowers and record-low interest rates, housing values are likely to be more insulated than sales activity,” according to Mr Lawless.
“The extent of any fall in housing values is impossible to fathom without first understanding the length of time this health and economic crisis persists. Arguably, the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values.”
In the meantime, the property analyst noted that current restrictions on property transaction activity would limit the reliability of statistical analysis of market trends.
“Measures of housing values and prices rely on timely updates of recently sold properties; a material slowdown in turnover is likely to create some challenges over the coming months in how we report on market conditions,” he said.
For the final week of April, ending 3 May 2020, CoreLogic’s latest Auction Market Preview found that the combined capital city auction market is expected to see a slight increase in auction volumes, to 544, following the previous week’s drop as the nation stopped to commemorate Anzac Day.
The lower volumes during the previous week can be attributed to the continued challenges around social distancing, with only 413 auctions held last week, CoreLogic said.
“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.
According to CoreLogic, there are 184 Melbourne homes scheduled for auction this week, up on the 144 over the previous week. Sydney, meanwhile, is expected to be the busiest city for auctions for another week, with 254 properties scheduled to go under the hammer, up on the 192 held last week.
Adelaide, Brisbane and Perth are all expected to see a higher number of auctions held this week, while scheduled volumes are lower in Canberra. There were no auctions in Tasmania during the week.
Going forward, CoreLogic said 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 [have] been dragged lower over the past month due to a surge in auction withdrawals, which are counted as unsold in the clearance rate statistics,” CoreLogic said.
Market indicators have already begun pointing to a slowdown in sales activity, with auction clearance rates falling below 60 per cent.
The reversal in sentiment has prompted some analysts to forecast price declines of up to 15 per cent against an unemployment rate of 10 per cent (currently 5.1 per cent).
As sellers hold off on putting properties in the market, the Perth property market maintains balance by a coinciding decline in new listings for sale.
According to Ms Everett: “While we are seeing a drop in buyer activity as anticipated, this is also coinciding with a decline in new listings for sale, with many sellers holding off until market conditions improve, so as it stands the market is maintaining some level of equilibrium.”
Further, the fact that sellers aren’t “panic selling” could be an indicator of longer-term confidence in Western Australia, she said.
“While this is a positive sign that sellers are recognising the stronger long-term outlook at hand for Perth’s property market, it’s also reassuring that we aren’t seeing market conditions that could cause widespread seller competition, and hence a significant fall in property sale prices,” she said.
“From a buying perspective, we are actually seeing a number of buyers who are reviewing their finances, not just to mitigate the current situation, but also to prepare to capitalise on opportunities as the situation improves.”
The shortage of stock for sale and rent in Perth stands the property sector in better stead than other major markets across Australia.
While the current environment will likely lead to a continued reduction in transactions as people deal with the uncertainties, there is still a strong underlying demand for housing, which places Western Australia in better stead than markets such as Sydney where high levels of investor participation and oversupply could increase susceptibility to price fluctuations, Ms Everett highlighted.
CoreLogic’s quarterly data has found that the momentum built up in January has decelerated, despite rental gains in March being positive at 0.3 per cent.
The latest quarterly results followed an upswing in values since September 2019, with January’s results showing growth of 0.5 per cent. This occurred against slight moderations in new dwelling completions, which fell -7.6 per cent over 2019 from the previous year, and lessened the addition to supply in the rental market.
“Steady overseas migration also contributed to added demand in the rental market over 2019. It has been documented that overseas migrants typically initially rent when they first arrive from overseas,” said CoreLogic’s Eliza Owen.
“However, it is worth noting that overseas migration rates had started to slow a little by September 2019.”
Capital city rents are 1.3 per cent higher over the quarter and 1.0 per cent higher year-on-year. Regional rents, meanwhile, are 1.0 per cent higher over the quarter and 2.6 per cent higher over the year.
Six of the capital city dwelling markets experienced a month-on-month increase in rent values, led by Perth, where rent values rose 0.8 per cent. Brisbane rents were flat over the month, and Hobart rent values declined 0.4 per cent.
Sydney remained the most expensive rental market, with a current median rental value of $577/week. The differential between Sydney and the second-most expensive rental market, Canberra, has trended down to just $1.
In terms of supply and demand, data from REIWA shows that Perth’s leasing market continued to record strong activity, with the number of properties for lease continuing its downward trajectory.
According to Amanda Kroczek, team leader of Momentum Wealth’s property management division: “While we may see a decline in leasing activity over the coming weeks due to the temporary drop in interstate, regional and overseas migration, as it stands we are still receiving a lot of enquiries from prospective tenants.”
While experts are not expecting the same level of rental growth that they were anticipating earlier in the year, especially with the impact the pandemic will have on jobs, they are hopeful the measures and assistance provided by the government, in addition to the relatively low levels of rental stock on market, will place Perth in strong stead compared to other markets that may be facing an oversupply of properties for lease.
Ultimately, during times of uncertainties, Ms Everett strongly encourages property investors to remain focused on the longer-term outlook.
According to her, while the impact of the ongoing health crisis is going to be short and sharp, many of these effects in terms of market activity are going to be temporary and property will, as it has previously with events such as GFC, recover and show strong-term resilience.
“Perth especially is well placed to embrace that recovery,” she concluded.
Despite uncertainties, Mr Pressley remains confident that the property market will recover from the impact of the COVID-19 pandemic.
After all, shelter is an essential commodity, common to all of 25.5 million Australians.
Looking back, Mr Pressley highlighted that real estate led the rebound out of Australia’s last recession almost three decades ago, when the unemployment rate hovered around 10 per cent during the 1991 recession year and the subsequent two years.
Over those three years ending 1993, eight out of eight capital cities produced property price growth of between 2 per cent (Melbourne) and 27 per cent (Perth).
A similar story happened 12 years ago during the global financial crisis – the biggest economic downturn in history.
Property prices again increased in eight out of eight capital cities over the three years ending 2010, with Darwin (32 per cent) and Melbourne (21 per cent) emerging as the best-performing capitals.
“The 200,000 real estate professionals across Australia are doing a stellar job providing the essential service of buying, selling and renting shelter. With a few logistical tweaks, it’s business as usual for the shelter industry,” according to him.
Understandably, curtailed human mobility will mean significantly less real estate activity. In fact, Mr Pressley, like most property experts, expects that the coming months will smash a record low transaction volumes.
However, fewer buyers will be neutralised by fewer sellers, ultimately balancing the level of supply and demand.
Mr Pressley noted that Australian real estate already had a significant shortage of properties listed for sale before coronavirus tipped communities upside down.
“Indeed, for those with income security, it’s an incredibly exciting time to transact in real estate now. From first home buyers to upgraders, downsizers and property investors, those who do will be the biggest beneficiaries in a couple of years from now. Safe as houses!” he said.
To aid the property market’s recovery, the construction sector calls for government support to allow them to fast track projects that will ultimately kick-start the sector.
The 5.3 per cent fall in the number of building and construction industry jobs revealed in the last six weeks shown in data released by the ABS is alarming and reinforces the need for immediate government stimulus measures, according to Master Builders Australia’s CEO Denita Wawn.
Further, results of a new Master Builders survey of its members show that 73 per cent have seen a substantial fall in forward work on their books of 40 per cent on average.
“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 added.
“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.”
Moving forward, Ray White Commercial’s head of agency operations Andrew Freeman encouraged investment in commercial real estate for keen investors, highlighting the fact that Ray White Commercial recorded sales of over $70 million via auction campaigns just over the past month.
According to Mr Freeman, now is actually a terrific time to be investing in commercial property if the investor is in a position to do so as interest rates are at a record low.
“Money has never been so cheap for buyers. Money in the bank is offering no real return right now, so savvy investors are looking to commercial property to increase their return on investment,” he said.
One of the notable sales Ray White Commercial has spearheaded over the last month include a commercial warehouse in Summer Hill, which sold for $1,655,000 following an auction with five of the nine registered bidders competing.
Ray White Commercial Sydney City Fringe principal Kristian Morris said: “The key to this new world of auctions working is communication, and lots of it. We took the time to take the vendor through the process so they felt comfortable throughout.”
“Good properties in good locations with good fundamentals will always perform well, irrespective of what’s going on in the market at the time. The property itself was a good-looking character-filled creative warehouse with very strong links to three transport options – light rail, buses and the train station.”
Meanwhile, the group’s biggest online auction sale over the weekend was a commercial asset in Northbridge, Western Australia, which sold for $2,200,000.