Melbourne’s stage 4 restrictions have been weighing heavily on the national economy following the recent COVID-19 outbreak around the world. How will the Victorian capital fare in the remaining months of 2020?
The Reserve Bank of Australia held the official cash rate at 0.25 per cent for the fifth consecutive month following an out-of-cycle cut in March.
According to AMP chief economist Dr Shane Oliver, having provided massive monetary stimulus back in March, the RBA is still in “watch-and-wait” mode, with the focus on fiscal policy.
Further, CreditorWatch CEO Patrick Coghlan believes that while the economy is facing hardships, business confidence is rising, which rendered a rate change unnecessary.
However, the underlying economy is still being held up by government support, meaning action in the future might be needed by the central bank, according to him.
“By maintaining interest rates today, this is sympathetic to the balancing act our economy faces. However, there is concern that by extending the likes of the government’s business stimulus packages, we are simply kicking the can down the road,” he said.
“Once the likes of JobKeeper, JobSeeker, mortgage holidays and safe harbour do eventually come to an end, there will be a seismic shock to the economy as companies will have to either fend for themselves or admit defeat.”
Dr Oliver believes that the next rate rise will be at least three years away.
Despite economic uncertainties, Real Estate Institute of Victoria’s president Leah Calnan said that Melbourne’s property market remains stable, ultimately providing confidence to investors moving forward.
“The market has been very consistent and that is a positive aspect for everyone. It’s really important for those people who have mortgages and have put a hold on them because it gives them reassurance,” according to her.
“It also supports investors who have had to either put hold on their mortgage or provide rental reduction assistance for their tenants.”
However, while current investors and owners are likely to win with stable house prices, those looking to get into the market right now might not have the same positive outlook due to the lack of bargains.
Still, she encourages investors to take advantage of opportunities that will arise in the future, whether in capital city markets or regional markets.
The new-found flexibility in workplaces have given rise to demand for properties outside the metro, thus opening up more opportunities for investors to enter the property market at an affordable entry point.
“If there’s ever an opportunity to get into the property market, you’re comfortable with your repayments, you feel your employment is secure, get in. The data continues to show us that the property market in Victoria is strong and consistent,” she highlighted.
“Besides, I don’t think you will see bargains out there. We aren’t going to see those 30 or 40 per cent property reductions that we have predicted.”
According to results released by CoreLogic Home Value Index, property prices fell by 0.6 per cent nationally. While this is a slight improvement on June’s 0.7 per cent fall, July’s results mark the third consecutive month of declines in housing values.
Melbourne was the hardest-hit capital city market, falling by 1.2 per cent as the state continues to battle the COVID-19 pandemic.
Sydney also dragged property prices down, with Australia’s largest city falling by 0.9 per cent.
On the other hand, Canberra and Adelaide both posted gains for the month of July, while the combined regional areas were unchanged during the month.
Over the quarter, house prices in Melbourne went down by 3.5 per cent to a median price of $881,369, while unit prices fell by 1.7 per cent to a median price of $537,345.
According to Domain, this is Melbourne’s first fall recorded since early 2019 and the deepest fall across all Australian capital cities.
Domain’s Dr Nicola Powell said: “Melbourne’s property market outlook has adjusted in recent weeks as the city enters its second lockdown.”
“The full impact of the first economic shutdown was clearly evident in the June quarter. Sales activity, listings and clearance rates fell in April. However, the rebound was swift as restrictions eased, confidence lifted from the April lows, vendors returned, and more buyers decided it was a good time to purchase – nationally rising to a six-month high. The second lockdown will stall this momentum temporarily.”
Overall, despite recorded price falls, the housing markets have generally weathered the COVID-19 storm much better than originally anticipated, but the market’s resilience might not hold up for longer as government benefits and mortgage holidays are expected to be relaxed in March 2021, according to CoreLogic’s head of research Tim Lawless.
“As stimulus measures wind down and borrowers taking a repayment holiday face up to their debt, it’s logical to expect a rise in distressed properties coming onto the market. The extent to which this causes additional downwards pressure on home prices depends on how the Australian economy is travelling at that time,” he said.
As such, he expects the property market to fall further by 10 per cent nationally, with Sydney and Melbourne leading the decline.
Dr Oliver, on the other hand, expects an even worse decline, particularly for major capital city markets, following a new round of lockdown measures in Melbourne and the threat of a second lockdown in Sydney.
“With Melbourne going back into lockdown, I suspect that Melbourne is at risk of a greater decline. We could end up with higher effective unemployment and more businesses going bust and, thus, more households running into trouble,” he said.
He expects home values to fall by as much as 12 to 13 per cent in Melbourne, with a similar scenario likely for Sydney if a second lockdown is imposed.
Domain’s latest report showed that unit rentals yields fell nationally by 3.2 per cent over the quarter, equivalent to $15 per week, marking the biggest drop in more than 15 years as COVID-19 pushed landlords to reduce rates.
Since March, capital city house rents have dropped by only 0.3 per cent, while over the same period, unit rents are down a more substantial 2.6 per cent. Sydney and Hobart unit rental were hit the hardest.
Hobart stood out as recording the largest decreases, with rents for houses down 2.0 per cent, and units down 4.4 per cent since March.
According to Dr Powell: “The rental market has become highly fragmented in recent months. With weaker conditions for units compared to houses, tenants have a better chance of nabbing a cheaper unit.”
“This weakness has been led by significant rent reductions in Sydney and Melbourne inner-city areas due to a surge in advertised rentals from March to June.”
Inner Melbourne saw house rents drop by $40 and units by $35 a week over the quarter, along with a rapid increase in the number of properties for lease.
Further, Mr Lawless highlighted that some inner-city areas of Melbourne and Sydney have seen rental listings more than double since March due to the combined effect of temporary migrants departing and overseas arrivals.
The latest ANZ-CoreLogic Housing Affordability report has shown that inner Melbourne recorded a 57 per cent increase in advertised rental properties, while Sydney’s city and inner south both record a 53 per cent jump.
Compounding this weak demand position is the surge in construction activity and investment over previous years, which has added to inner-city rental supply.
“Anecdotally, the transition of short-term accommodation, namely Airbnb, to permanent rentals is temporarily adding to supply. Additionally, the significant employment decline across food and accommodation services, arts and recreation services is compounding the weak rental demand as these sectors workers are more likely to rent,” Mr Lawless said.
“To date these sectors have seen the largest number of job losses and impact on wages. With the second wave of social distancing policies and border closures, these workers are once again facing hardship.”
Still REIV President Leah Calnan remains confident in Melbourne’s rental market, especially as vacancy rates relaxed slightly and the rental market tightened further in regional Victoria.
REIV recorded a 3.0 per cent vacancy rate in Melbourne while regional Victoria recorded a further tightening of the rental market with 1.8 per cent.
According to her: “Melbourne’s rental market is holding firm in the face of the pandemic creating unique conditions. The relaxing of vacancy rates means that there are more homes available for people to rent, and there has never been a more important time to have a roof over your head.”
CoreLogic’s latest data has found there were 1,162 homes taken to auction for the final week of July, returning a preliminarily success rate of 65.3 per cent. This is a jump from the week prior, where preliminary results came in at 59.2 per cent, later revised down to 54.1 per cent.
The same time 12 months ago, CoreLogic tracked 1,108 capital city homes, returning a final auction clearance rate of 66.4 per cent, meaning a similar result year-on-year.
There were 351 Melbourne homes scheduled for auction during the said week, lower than the 540 over the week prior.
Lower volumes saw Melbourne’s preliminary clearance rate improve with 59.8 per cent of auctions successful as fewer withdrawn auctions were recorded this week lifting the success rate.
Of the 296 results collected so far, 86 were withdrawn results, which are quite a bit lower than last week’s 217 withdrawn results, equating to a 29 per cent and 40 per cent withdrawal rate respectively.
Of the sold results collected, just under 50 per cent reportedly sold prior to the scheduled auction date.
One year ago, 500 Melbourne homes were auctioned, returning a final clearance rate of 70.9 per cent.
Outside of auctions, data on properties sold by private treaty showed that, despite the restrictions to selling properties due to the coronavirus pandemic, the demand remains for residential properties in Victoria.
REIV’s research found that houses spent just 41 days in the market, down from 44 days in the same time last year.
“There remains a huge interest from buyers despite the state undergoing restrictions due to the pandemic. The REIV days on market figures, among a range of other measures, show that our state’s property market is holding strong and delivering great results across the board,” Ms Calnan said.
Homes in metropolitan Melbourne are being sold within 39 days on average, improving on the 42 days it took in June 2019.
In regional Victoria, Lake Gardens in Ballarat is the fastest place to sell a home, taking only 24 days from listing, down from 25 days last year. Winter Valley and Wangaratta are the second and third-fastest localities to sell a property in regional Victoria, taking just 25 and 26 days, respectively.
Ultimately, the data proves that the Victorian residential housing market still remains highly desirable, Ms Calnan said.
“Properties spending less time on the market means sellers won’t have to deal with the stress of a lengthy real estate transaction. This is a great time to sell your property – a relatively lower volume of property listings is producing strong prices and driving down the selling time,” she said.
At the start of the coronavirus pandemic, the Victorian government provided 2,000 homeless Victorians with accommodation in vacant hotels to help reduce social mobility as part of the lockdown restrictions. This will be extended to at least April 2021 while the 2,000 recipients are supported to access long-term housing.
Further, the state government’s new $150 million “From Homelessness to a Home” package will help find more permanent housing for these homeless residents.
The Victorian government said it will arrange to lease 1,100 properties from the private rental market to provide permanent homes for people once they leave their emergency accommodation. This investment will provide them with housing in the short-term while providing long-term support to assist them with finding their home.
Each individual will have access to support packages to help them while they are in crisis hotel accommodation, including mental health, drug and alcohol, and family violence support for those who require it.
The same support will be available to help maintain a tenancy once they move to other long-term housing.
According to Victorian Premier Daniel Andrews: “This pandemic has laid bare many inequalities – you can’t stay home if you don’t have one, and you can’t wash your hands regularly if you don’t have access to the bare basics of hot water and soap.”
“This is our opportunity to help break the cycle of homelessness, because now more than ever, home means stability, security and safety.”
In addition, the government has said the Private Rental Assistance Program will also gain extra funding to encourage people leaving emergency hotel accommodation to set up their own private tenancy, helping with the bond and initial rent.
Funding will be allocated to homelessness agencies in both metropolitan and regional areas, allowing them to provide services based on individual needs.
The investment follows the nearly $25 million funding for emergency housing, isolation and coronavirus recovery facilities for people experiencing homelessness, and almost $500 million to upgrade and build new community and public housing across the state.
Thanks to the federal government’s HomeBuilder grant, eight areas are now poised to be the next property hotspots in the coming years, according to Wealthi co-founder Domenic Nesci.
Two areas, in particular, are well placed to take advantage of the scheme: Western Sydney and Melbourne’s “inner doughnut”.
According to Mr Nesci, “Western Sydney is perfectly placed to benefit from the incentives, new investments in infrastructure and natural population growth. This will be especially so across Cobbitty, Leppington, Penrith, and Westmead.”
CoreLogic data has revealed that Cobbitty has seen a 95.3 per cent growth in population, while the median house price is just $725,000.
With more than 80 per cent of homes in the suburb owner-occupied, there’s plenty of scope for scheme applicants.
Meanwhile, about the Victorian capital, Mr Nesci said: “We like the inner doughnut, areas within five to 10 kilometres of the CBD that are less dense but will benefit from the same population growth metrics.”
Further, he forecasts that more apartments will come onto the market under that $750,000 figure, which will fall under the HomeBuilder scheme threshold.
His advice to those who will consider using the HomeBuilder scheme: undertake research before making any big decisions and stick with trusted companies who have a proven track record in delivering large-scale projects.