By Herron Todd White
The Coronavirus pandemic has left the property market in the inner Melbourne suburbs and CBD in limbo, as hundreds of rental apartments including student accommodation units are vacant due to many Chinese international student tentants being left waiting in China for travel restrictions to ease.
This has resulted in hundreds of units and student accommodation apartments listed for sale and lease as investors struggle to fill the void and try to replace the regular rent from students who would be otherwise be studying at universities across the CBD.
Generally, tenants renting these apartments are younger and are living in a share house situation. Given the recent events of the Coronavirus, many have no ongoing job security and are cancelling their leases to move back home with mum and dad. This has caused a spike in vacancy rates and an oversupply of rental stock on the market.
The City of Melbourne generally attracts a total of 5.6 million visitors each year. The inner city suburbs and CBD are feeling the brunt of the Coronavirus this year due to the closure of universities, cafes, restaurants, shopping outlets and many local businesses. The travel restrictions and lockdowns in place have put immense pressure on the property market in the surrounding suburbs as the area is not attracting tourists and visitors due to travel restrictions, leaving apartments empty.
Data has shown that areas such as Southbank are seeing more listings where rental listings are up 192 percent for March this year in comparison to March last year (Domain, 2020).
Outer South East Property Update
As the Melbourne housing market is feeling the effects of broader market uncertainty, there is a silver lining for those looking to take their first step into the property market.
First home buyers with job security who were looking in the property market prior to the pandemic are encouraged to take advantage of the current market conditions as sellers are more open to negotiation. With interest rates at a record low coupled with the government’s First Home Buyer’s grant ($10,000 grant for metropolitan homes and $20,000 for newly built regional homes), the current market is favourable to those looking to snap up their first home.
The restrictions surrounding COVID-19 and social distancing measures have resulted in agents implementing new ways to conduct virtual inspections and online auctions for properties across the country. Agents in the local areas in south-east Melbourne have commented that the number of enquiries has decreased since the Coronavirus, however the number of serious buyers has remained the same, as it is a perfect climate for buyers to purchase as the competition pool has decreased, leaving more room for negotiation to favour buyers.
In the outer south-east region within the growth corridors of the City of Casey and Cardinia, purchasers are spoilt for choice as there are many new estates coming up that will allow purchasers the options of affordable house and land packages.
The Orana Estate situated in Clyde is capturing the attention of buyers as the estate will be a part of the ‘Homes for Homes’ initiative, where a portion of each sale will go towards funding social and affordable housing in the City of Casey. The head of Balcon Group commented that a police officer was one of the first people to get their hands on a block of land. Orana says they are keen to support these groups.As it is clear that COVID-19 is impacting every part of the economy and social distancing and lockdown restrictions are preventing people from going about their everyday lives, the downturn of the property market could also bounce back quickly for two reasons:
- The property market has not yet being forced into a full shutdown; and
- The cost of borrowing is at its lowest ever level.
Inner and Outer North Property Update
Municipalities in the outer north, including Hume and Whittlesea, are experiencing moderate numbers of confirmed COVID-19 cases, at fewer than 40 cases each. Similarly, the inner north, including Moreland city and Darebin city with around 50 and 30 cases respectively, is continuing to perform relatively well in minimising transmission within the community.
There has been a reduction in supply of properties due to vendor uncertainty, whilst demand appears to have reduced less noticeably. Agents have reported that interested parties (rather than time wasters) are still making enquiries and are eager to purchase.
Inner north agents are still reporting moderate demand for properties that tick the boxes up to $1.2 million. Demand and enquiry levels have dropped off for properties sitting in the $1.5 million to $3 million range.
The Victorian government has announced it will be providing relief grants for Victorians experiencing rental hardship as a result of the Coronavirus. This is a one-off grant providing tenants with assistance to maintain safe and stable accommodation. In addition to this, there are also provisions for the Working for Victoria Fund, which aims to assist workers who have lost their jobs to find new opportunities including cleaning public infrastructure or delivering food.
Given the wide range of employment opportunities and demographics of these areas, economic pain will no doubt be felt similar to most of the economy, working at a reduced level compared to what it was previously.
In regard to properties exceeding $1.5 million, we expect many owners to be sceptical of what they’ll receive for their properties, especially in contrast to two months ago when there would have been significant demand.
Growth corridors may start to feel the economic impacts of COVID-19 in the coming year with lower levels of immigration that have previously been drivers of demand in these areas.
We predict that there may be potential for upgraders who may be able to take advantage of the opportunity to purchase properties previously out of their price range, following a potential decline in values for properties in the higher end of the market.
Agents remain optimistic and are working harder with multiple one on one inspections rather than the previous public open for inspections, introducing new methods of online auctions and taking advantage of their database network across multiple branches in order to reach a higher audience of prospective purchasers. Dwellings, townhouses and villas remain easier to sell than apartments, particularly where there is a high influx of apartments within an area and describing points of difference between apartments is challenging.
Agents have reported that they are predominantly dealing with owner-occupiers, as investors are not taking the risk of receiving no rental income due to COVID-19’s impact on employment.
At this stage, we have not witnessed a noticeable decline in property values which appear to have remained stable. We are unclear of the short term impacts on property prices at this stage.
We do not consider it a viable time for investors to purchase in the current climate due to reports from multiple property managers advising of tenants not being able to pay their rents due to recent unemployment.
Property managers advise that rentals have decreased slightly as investors would prefer to have their properties occupied at a reduced income than vacant. The previous landlord market has shifted more towards the tenant market.
Inner and Outer East Property Update
A global crisis tends to instil fear and panic in most investors’ minds. Periods of prosperity create confidence and willingness to invest due to the abundance of resources and the option to expand on what we already have, while crises seem to force individuals to retreat and protect what they own as a natural human response to fear and uncertainty. Especially with this crisis, investors are not as willing to risk investing in property in the current climate for fear of a large financial loss.
In the past year, the eastern suburbs experienced high growth, prosperity and high clearance rates at auctions, especially in the last quarter of 2019. Due to COVID-19 and the lockdown measures the government has put in place, the market has cooled off. The growth and acceleration of the property market in the eastern suburbs was tremendous in the past six to nine months. For a period of time in the beginning of 2019, the property market had a natural correction with the cycle falling into a slump after years of growth and signs of a very stable market. COVID-19 and its effects on the economy have made unprecedented changes in the current way Australians are living day to day. Having somewhere to live is one of the greatest needs for humans to survive and people need shelter more than ever right now. As an investor, buying property for redevelopment or to lease and have it operating as an incomeproducing asset is not the first priority at the moment. Until the government removes restrictions in place on the way we live our day-today lives, we predict this current market state to continue for the foreseeable future.
We foresee a limited availability in supply of houses and apartments in the coming months, limiting the opportunity for new home buyers and investors to purchase property. As the government increases restrictions on public gatherings and businesses are likely to work remotely, we will see a decrease in inspections and auctions. This will have a dramatic effect on the marketability of properties. Vendors and buyers need to continue to engage in selling and buying properties to continue economic growth. This will halt the economic decline which has been so prevalent in other industries that are built on face to face contact such as the education, tourism and hospitality sectors.
Western Suburbs Property Update
It’s fair to say that the Coronavirus pandemic has impacted everyone on a number of levels. Unless you’re in the hygiene or toilet paper industry, there’s a high chance that the restrictions enforced by the government to tackle this virus have negatively impacted your business. The property market across not only Melbourne’s west but across the nation has been negatively affected over the course of the past two months. With the banning of mass house inspections and auctions, home loan reductions and lockdown measures, it is self-explanatory as to why the property market has seen a decline in sale numbers and median house price.
Melbourne’s west is home to many rental properties due to the high number of investment properties scattered throughout the region. Areas with a high number of rental properties have been hit much harder than others due to the financial burden COVID-19 has brought upon many tenants. Many tenants are requesting rent reductions during these times and a number have been forced to move out and return to living with parents. This has increased vacancy rates substantially and is putting stress on landlords, especially those who rely solely on their investment property income.
Capital growth trends will be contingent on how long it takes to contain the virus, how deep the forthcoming recession is and whether additional constraints on business or personal activity are introduced. It is a fair assumption that the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values.
Melbourne’s west has been the nation’s strongest growing region over the past five years. Data shows that seven of the top ten best performing regions in Victoria are from the west. Population growth and relative affordability are the main driving forces which have caused this strong growth. We expect the western suburbs property market to continue to show the trends happening across the nation whilst these restrictions remain. Vacancy rates for rental properties will remain high with tenants and landlords both suffering, however this pandemic and these restrictions won’t last forever and it is a fair assumption to believe the western suburbs will bounce back to their previous market performance and continue to grow as one of the nation’s strongest performing regions.
Speak with a Melbourne Mortgage Broker today.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.