Following a series of two lockdowns to combat the COVID-19 outbreak, the Melbourne property market is believed to be ready for reopening. Is the Victorian capital truly on its way to recovery?
In the final week of September, Victorian Premier Daniel Andrews confirmed the reopening of Australia’s second-largest property market, with the new changes coming into effect on 27 September 2020.
As part of the updated regulations, private property and display home inspections must consist of one agent and one prospective purchaser or tenant, who may be accompanied by one other person from an existing household or an intimate partner.
According to the Real Estate Institute of Victoria (REIV), the relaxation of the restrictions, which stopped Victorians from buying, selling or leasing their property over the recent months, will ultimately see a slow and gradual return to real estate transactions in Melbourne.
“This will be an enormous relief to buyers, sellers and renters alike, many of whom have been suffering severe financial and emotional stress over the past few weeks,” REIV highlighted.
“The announcement is also welcomed by the real estate professionals as it will enable the first step in the resumption of property transactions and getting people back to work doing what they do best, which is helping Victorians find a home.”
Springtime usually marks a peak for property sales, but the inability to conduct inspections saw the number of transactions decline, with September numbers reduced to under 10 per week. Being able to inspect properties in a private and safe manner will enable online auctions and private sales to return, according to REIV.
Real Estate Institute of Australia (REIA) president Adrian Kelly said that the easing of restrictions “signalled an important step forward for Victoria’s property industry, the stakeholders of which had been forced to make unprecedented sacrifices across the past few weeks”.
Ultimately, Melbourne, along with the rest of Victoria’s property market, is on its way “back on a path towards normality,” he added.
Wealthi investment director Stephanie Davies backed the optimism on Melbourne’s recovery by highlighting how prices usually recover by a large magnitude after a fall, particularly when interest rates are declining.
According to Ms Davies, the property life cycle dictates that prices typically return at a rapid speed due to the pent-up demand from buyers holding back for such a long period of time.
Thus, she believes that property buyers who were stalled due to the 2019 election, the bushfires and the pandemic are likely to return to the market soon.
“This retraction of the property market has essentially impacted the natural flow of the property life cycle due to the unprecedented times – but this means a boom is close,” Ms Davies forecasted.
“Take the recent sell-out Qantas Flight to nowhere, for example. Australians are hungry for the things they love most and property is one of them.”
Moving forward, she expects to see demand rise back up to meet the oversupply in some areas and create buoyancy in the areas where property has been held on tightly to – a prediction that came as auction clearance rates continue to rise across NSW and even in Victoria, despite heavy lockdowns being in place.
“I believe there will be standout areas to watch over the next 12 months that will be exponentially impacted by government investment into infrastructure and sustained employment levels post-COVID-19, matched with an undersupply of new property, on the CBD fringe in our capital cities,” she said.
Among the pockets to watch, according to Ms Davies, are the areas around the new Western Sydney Airport and Parramatta, as well as the CBD fringe off-market opportunities in both Sydney and Melbourne for price growth.
Data released by CoreLogic has shown house prices have fallen nationally over September, but a closer look saw rises in capital city markets except the big markets of Sydney and Melbourne.
CoreLogic’s national home price index showed a 0.1 per cent fall last month, which was entirely driven by a 0.9 per cent slide in Melbourne and 0.3 per cent decline in Sydney.
Outside those two big cities, the other capitals saw price increases, as did most markets outside the metropolitan areas. Houses generally outperformed apartments, with prices steady nationally last month versus a 0.3 per cent fall for units.
Unit rents have also underperformed compared to house rents during the pandemic, declining 3.3 per cent nationally since 31 March, as opposed to a 0.4 per cent rise in house rents.
With housing affordability pressures mounting, Domain found that first home buyers, particularly across Sydney, Melbourne, Hobart, Brisbane and Canberra, now require more time to save for a 20 per cent deposit.
FHBs in Melbourne are expected to save up for an average of six years to secure a 20 per cent deposit for a house worth $600,000, up two months on last year.
The hit to housing affordability across the aforementioned capitals has coincided with annual price increases, slightly offset by downward pressures resulting from the COVID-19 outbreak.
Canberra reported the sharpest annual house price growth (6.6 per cent), followed by Hobart (6.4 per cent), Melbourne (2.9 per cent), Sydney (2.6 per cent) and Brisbane (1.9 per cent).
According to Domain’s senior research analyst Dr Nicola Powell, affordability pressures are set to improve nationwide over the coming months as FHBs reap the benefits of state and federal government incentives, including the First Home Loan Deposit Scheme and the $688 million HomeBuilder scheme.
“Buying conditions have improved, first home buyers appear to be taking advantage of low interest rates, retreating investor activity, reduced foreign buyer interest, the extension of the federal government’s First Home Loan Deposit Scheme and other state-based incentives,” she said.
The latest Lending Indicators data from the Australian Bureau of Statistics, revealed that the value of FHB loan approvals surged 10.6 per cent in July to $4.2 billion, contributing to a 10.7 per cent spike in owner-occupied approvals to $14.3 billion.
Landlords have been inclined to hold rental rates steady, despite the COVID-19 pandemic seeing rising unemployment as government benefits continue to support the Australian economy, according to CoreLogic.
According to CoreLogic’s head of research Eliza Owen, rental yields have fallen nationally by 0.8 per cent, as JobKeeper and JobSeeker see a rise in income for many Australians.
While rental conditions have held firm over the past few months, Ms Owen noted that many renters have been seeking to reduce the rate.
“Almost a third of real estate professionals had seen an increase in requests for rent reductions, over a quarter had seen an increase in rental delinquencies, and 8.8 per cent had noted an increase in evictions,” Ms Owen said.
“Of the real estate professionals who had noted an increase in rental delinquencies, 56.8 per cent were based in Victoria, suggesting renewed restrictions across the state have impacted tenants’ ability to service rent.”
Despite this trend, results showed that the rate of delinquencies has fallen since March, with the market normalising and government support continuing to support landlords.
“Of the 125 respondents that noted delinquencies, 72 per cent indicated that, on average, tenants were less than four weeks in arrears. However, over a fifth of respondents (22.4 per cent) indicated that average arrears were more substantial, at five weeks to three months,” Ms Owen explained.
Instead of having delinquent payments, renters are more likely to terminate their lease early, the research showed.
“A distressed rental market that saw rent reductions, early termination and evictions would presumably see an increase in vacant properties, indirectly lowering the price of advertised rental stock,” she said.
Over the past months, Sydney and Melbourne have remained the hardest-hit areas for landlords.
According to CoreLogic’s data, the Sydney and Melbourne unit markets have seen rent reductions of 4.2 and 4.4 per cent, respectively.
Currently, newly listed properties are only showing more exaggerated declines around inner-city areas.
In fact, rental listings data shows only six of 88 SA4 markets analysed saw an increase in total advertised stock since the start of the pandemic.
“The end of this stimulus could see a broader decline in rental market conditions, particularly across Victoria where many businesses remain closed,” Ms Owen said.
New research by Domain has shown that demand continues to weaken in Melbourne as stage 4 lockdowns continue to have their effect, including an “extremely weak” number of new listings and “less than positive” sales results.
Dr Powell said that Melbourne’s indicator nudged higher by 0.3 per cent for houses in the week ending 6 September, following four consecutive weeks of falling demand, which mirrors the stage 4 lockdown timeline.
Further, Melbourne stood as the only city on the same week to record reduced demand for units, falling by 7.1 per cent. This marks the fifth consecutive week of weakened demand, surpassing the depth and duration of the slump recorded during April restrictions.
Ultimately, the indicators for Melbourne as a collective has reached its lowest point since January for both houses and units, according to Dr Powell.
Over the four weeks to 6 September, demand dropped 13.8 per cent for houses and 19.7 per cent for units.
“This emphasises the impact Melbourne’s lockdown has had on real estate given January is seasonally a weak period for transactional activity, as the holiday season distracts buyers and sellers,” she explained.
“The indicator is significantly lower compared to the same period last year, down 17.3 per cent for houses and 23.4 per cent for units. For units, this is the steepest annual fall since the indicator’s inception in October 2017, and the steepest since mid-November 2018 for houses.”
Nevertheless, while both units and houses saw significant drops in buy intent behaviour from property buyers, units stood out as the more severely impacted as houses remain the most in-demand property type for Melbourne buyers, with a whopping 135 per cent more likely to buy these than units.
According to Dr Powell, this could be attributed to weaker investment activity.
“The current health pandemic has impacted our global real estate markets in fundamentally different ways. Melbourne, New Zealand and the UK had swift and hard lockdowns and real estate activity plummeted, while cities that had more relaxed restrictions had some property markets operating normally,” she said.
However, moving forward, she anticipates an improvement in pent-up demand and supply as Melbourne’s restrictions gradually ease.
“As cities worldwide emerge from different degrees of restrictions, analysis of post-lockdown recoveries suggests that the more severe a lockdown, the quicker the recovery,” she said.
Other experts are also applauding Victoria’s resilience amid the impact of the COVID-19 outbreak on its property market.
Harcourts Victoria/Tasmania’s CEO Tony Morrison said that, this spring selling season, he expects real estate in the state to continue to thrive.
“When we first went into lockdown in April, our sales probably went down about 30 per cent, but then in May we were almost back to normal. Overall, if you look at the same six-month period this year, it’s not that different than for the same time last year,” he said.
“We’ve even got offices in Melbourne that have had five or six sales over that five to six-week shutdown period. If you go outside greater Melbourne to Geelong or Ballarat, the numbers are quite incredible. In Ballarat, we had 32 sales completed last month, which is almost a record and they were under stage 3 restrictions. Pakenham, which is in stage 4, completed 13-14 sales and they can’t even hold inspections – it’s been pretty amazing.”
Once the lockdown finishes, Mr Morrison expects houses to sell quickly, with multiple offers and great prices.
“All things considered, the market is good. So far, there is every indication that we are going to experience a boom after restrictions are eased and our extremely resilient agents are very optimistic about the spring this year,” according to him.
Westpac chief economist Bill Evans, who previously expected a 10 per cent slump between April 2020 and June 2021, now expects only a 5 per cent correction through to late 2021.
According to him, it is more likely that there will be short-term pain for property investors before a surge in value over the next two years.
In fact, Australia’s two largest cities, Sydney and Melbourne, are tipped to have strong growth, with a 14 and 12 per cent jump by 2023.
“This recovery will be supported by sustained low rates, which are likely to be even lower than current levels; ongoing support from regulators; substantially improved affordability; sustained fiscal support from both federal and state governments, and a strengthening economic recovery, particularly once a vaccine becomes available, which we expect in 2021,” Mr Evans said.
The forecast change comes amid improving optimism among economists about the housing market following better-than-expected performance and data, including improvement in housing finance approvals and recovery in new lending.
However, along with the optimistic predictions comes a warning of risks that could very well be associated with the upside.
According to Mr Evans: “Including the 5 per cent fall we expect out to mid-2021, this would see a cumulative increase in prices of 10 per cent from pre-COVID highs over a three-year period where interest rates and credit supply are likely to be at maximum levels of stimulus.”
“Those upside risks are based on the psychology of markets. If participants are convinced about our views on the likely favourable conditions in the fourth stage of the cycle, they may choose to boost demand earlier than we currently expect, providing an even more robust defence against the headwinds we envisage in stages 2 and 3.”
Propertyology’s Simon Pressley points to the shortage of available supply and strong buyer activity as the main factors that will likely lead to strong growth in the capital city property markets.
“The current list of boom property markets is likely to expand significantly within just a few months. Australia is on track for its first widespread boom era since the turn of the century,” Mr Pressley said.
He advised investors to avoid waiting for the “market to turn” as they could easily miss out on opportunities for double-digit growth.
“There is a five-month lag between the day a property contract is signed until the transaction is captured as part of published median house price movement data. But the world has changed so much in the last five months,” he highlighted.
“By the time the Australian public has access to data that alerts them of the fact that real estate prices are seriously on the move, they will have already missed out on double-digit growth.”
“So, folks, get your finances organised and beat the next flock of seagulls.”
Meanwhile, Dr Powell pointed to the next emerging property hotspot as both houses and units in the area have made the top 10 most in-demand areas.Peninsula as the
The area also recorded some of the steepest annual increase in activity, Dr Powell said.
“Once lives return to near normal, the commute to the office will play a less crucial role in deciding the location we reside. This may be one of the reasons for a shift in demand to Mornington Peninsula, while others could be considering a holiday home purchase as overseas travel will be unlikely for the foreseeable future and remain undesirable for some,” according to her.
“While units have experienced the biggest negative shift in demand, some areas buck this trend. Units in areas of Mornington Peninsula, Frankston, and Casey North have recorded an increase in demand since the onset of the COVID-19 crisis.”
Finally, “Ivanhoe Gardens”, a large-scale residential project with an end value of circa $140 million located in Ivanhoe, Melbourne, is also expected to make way for a boom in the property market.
The project is well located in the leafy north-eastern suburb of Ivanhoe, where residents will have direct access to public transport, with a metro train station and bus stops along Bell Street.
-based developer Blue Earth Group said: “These are beautiful vibrant spaces that draw inspiration from the 21st-century lifestyle. ‘Ivanhoe Gardens’ will meet the demands of an urban lifestyle, striking a balance between work, rest and play with spaces that ultimately connect people with a shared concern for a better way of life.”