By Herron Todd White
With stage 4 restrictions enforced in metropolitan Melbourne and stage 3 in the remaining regions of Victoria, there is real uncertainty moving into the rest of the year about the immediate and future impacts of these restrictions on all areas of the economy. The property market will see a direct impact due to the restrictions not allowing open houses.
Instead, inspections being held online have seen many vendors hesitant to list, consequently reducing current levels of stock. The latest statistics show that dwelling values in Melbourne dropped by 1.2 per cent in July (Corelogic, 2020). These values were before Stage 4 restrictions which have further restricted the ability of both buyers and sellers.
So, will the upcoming spring sales period provide any signs of improvement? The clearance rate in Victoria for the week ending 16 August was 89 per cent (REIV Market Insights). This is extremely strong for vendors and at a glance could be interpreted as a seller’s market, however this was from a reported 114 auctions, down from 188 the previous week and down again from 523 for the same time last year (REIV Market Insights). The lack of stock in the market is creating more competition between buyers and that’s why there has been a relatively small drop in Melbourne prices when many expected a greater fall in the market.
This month we will be looking at whether there will be a spring in the market this spring selling period. Traditionally a busy selling season, we look at whether this trend will continue and whether we will see the rise in numbers of buyers and sellers we are accustomed to seeing, while also taking into account the influence COVID-19 will have on the market.
Inner and Outer East
It is reported that just over 1850 houses in Melbourne were expected to be auctioned over July, up 16 per cent from June and an astounding 161 per cent from May, however due to the ban on public real estate auctions, vendors faced the decision of selling via expressions of interest, private treaty or a virtual auction (domain.com.au). Following the re-implementation of restrictions, the number of auctions withdrawn drastically increased to 35.9 per cent in July, pushing down clearance rates. It is anticipated that withdrawal rates will reduce and auction volume will remains minimal in the coming weeks. However, some optimism is placed in expectation of an increase in virtual auction numbers, surpassing those experienced in the first lockdown as it becomes a more normal and familiar process.
Clearance rates in Melbourne’s inner east currently sit at 50 per cent with a volume of 192 and 33.6 per cent for the outer east suburbs with a volume of 145 (domain.com.au). Additionally, due to Melbourne’s second lockdown, vendors have been reducing asking prices. The proportion of discounted listings for most cities remains high but has slightly dropped from recent months. For the whole of Melbourne, the effect of COVID-19 is profoundly apparent as this proportion has increased from 3.1 per cent in July 2019 to 11.5 per cent in July 2020. Specifically, in eastern suburbs in July, the proportion of sale listings with a discount for the inner east is 12 per cent and 12.6 per cent for the outer east (Domain.com.au).
Amid the pandemic, as of August 2020, the State Revenue office has reported that 15,000 Victorians have registered interest in the $25,000 Homebuilder Grant. This grant is available to those who sign a contract to build a new home for up to $750,000 or home renovations between $150,000 and $750,000 for a house valued at less than $1.5 million between 4 June and 31 December 2020.
Melbourne’s outer east ranks fifth in the eligible hotspot regions with approximately 130,000. properties valued at less than the threshold (smartpropertyinvestment.com.au) which potentially will see an increase in existing dwellings being either extended, renovated or improved in these testing times.
Spring has traditionally been considered a peak season in the property market. The weather warms up and the flowers are in full bloom, people become more active and get outside more often to search for their dream properties. As there are a large number of home buyers at this time of year, spring is considered the most effective time to sell a home.
In the Melbourne CBD, the number of property listings is relatively higher in spring. In July 2020, about 787 properties were listed on the market in the CBD, an increase of seven per cent from June and 25 per cent higher than the same period last year. Although there were a higher number of listings, about 41 per cent of the stock sold within 90 days in July. Amid the Stage 4 Coronavirus restrictions in Melbourne, we are not expecting to see a V-shaped rebound in market activity. According to the REIV, the current clearance rate in the CBD is approximately 66 per cent.
Suburbs located within the City of Casey and Cardinia regions have become a popular hotspot for first home buyers in recent years. Along with the start of spring, we have seen the property market in some of the outer south-east suburbs such as Clyde and Clyde North become more active. In July 2020, there were circa 2,396 properties listed on the market, up 16 per cent from May. More than 65 per cent of the listed properties are expected to be sold within 90 days.
Amid the COVID-19 pandemic, we have seen the housing market in Clyde experience consistent quarterly growth. As of quarter 2, 2020, the median price of a house in Clyde is $560,000, increasing by ten per cent compared to the same period last year. The strong growth rate also reflects the high demand for housing in the area.
According to the REIV, more than 70 per cent of dwellings in the area are occupied by the owner. Due to the current government incentives and low cost of borrowing, we are expecting to see more first home buyers getting into the property market in outer south-east regions.
Inner North and Outer North
The current stage 4 restrictions on real estate agents will have major implications at the start of the spring selling period. At this stage, the restrictions may be eased on 13 September and agents can begin to list and start their four-week marketing campaigns. This realistically will create a delay of roughly four to six weeks before the first transactions are completed.
Spring traditionally sees a peak in the number of listings across the country and the inner northern suburbs follow this trend with the highest volume during this period. This also occurs to a lesser extent in the outer north, with many young couples, families and first homeowners visiting display homes, although that is highly unlikely to be the case this year with these current restrictions. Market activity has slowly tracked down in both the inner and the outer north. This has been directly linked to the restrictions first implemented in March and now the current stage 4 which sees no auctions, open houses or private inspections, resulting in vendors being reluctant to list.
The uncertainty surrounding the market is largely due to the unknown beyond 13 September. If restrictions are lifted it would be a fair assumption that there would be an inundation of new listings hitting the market and motivated buyers looking to buy. In the outer north, major land developers such as Stockland and Lendlease would likely look at doing spring rebates and discounts to attract new buyers to their products.
The new homeowners $25,000 building grant has made new land or house and land packages increasingly attractive for those looking in the outer suburbs and has helped to keep this segment ticking along. Suburbs such as Donnybrook and Kalkallo have seen increasing popularity with a number of new estates including Platform and Peppercorn Hill now selling land and giving buyers more choice. Freestanding houses in the range of $1 million to $1.75 million in the inner middle suburbs of Coburg and Brunswick are continually selling well due to the limited stock in the market. 63 Bruce Street, Coburg sold for $1.815 million, $90,000 above the reserve, on 15 August.
The Inner city suburbs saw an increase of three per cent in June for vacant properties (REIV Market Insights) with units having the highest volume of these new vacancies. This trend is likely to continue due to the current restrictions and may see some investors looking to sell their properties as the trend of reducing returns continues. Vacancies increased due to a decrease in demand from students and as a result of young people moving back home or changing living arrangements due to loss of work or income.
The test for the market will come when mortgage freezes are removed and JobKeeper is reduced from $1500 to $1200 per fortnight after September. This may add pressure for individuals or families currently out of work but who are able to get by with the help of the above measures. Fortunately, both of these measures are set to continue throughout the spring period, albeit at reduced rates for JobKeeper.
Springtime in the western suburbs is traditionally a seller’s market. Judging from the sales per annum in the past three years, we can see an increase in sales in this quarter in the more established inner parts of the west such as Williamstown, Essendon and Altona. In more affordable areas such as Tarneit, Truganina and Melton, trends suggest a peak in the quarter prior to spring.
The market in the west has been subjective depending on location this year. The volume of sales has been on a slight decrease in more established inner areas such as Williamstown and Altona in the past few months whereas areas such as Truganina, Point Cook and Melton have increased. Areas such as Williamstown are highly sought after and have a higher median price entry compared to Truganina and Point Cook.
With an ongoing recession, people may not be looking to purchase high-end real estate at this point in time. Instead buyers may look for more feasible options, such as further west towards the Wyndham Vale region. The government’s incentive of the home builder’s grant has also seen development in areas such as Truganina, Tarneit and Point Cook experience an increase in land sales.
Judging from previous months, we will continue to see a decline in the number of sales in more established areas and numbers in development areas will stabilise. If people are not in a position to purchase and more properties continue to enter these established markets, this will result in a price drop for this area. We consider the Wyndham Vale municipality will be the strongest area of the region given that property is cheaper in this area and vacant land is still in high demand. We can expect the volume of sales to stabilise in this area over the spring period.
Usually the busiest time of year, the spring season of 2020 is expected to be a different one for Geelong, but not necessarily negative. Geelong remains a seriously sought-after region as it continues to expand in just about every facet, with affordability compared to Melbourne being the number one driving force, underpinned by strong employment sectors including government, education, health and finance. These industries have been the pillars of the Geelong market over the past four months and will continue to set the tone for the foreseeable future.
While total transaction numbers have been down, Geelong has seen strong growth in its median house price over the past few months. This trend can be attributed to Melbourne and Melbourne fringe residents prioritising lifestyle locations. This trend was already underway prior to the COVID-19 restrictions, however with more residents working remotely and proximity to office locations becoming less of a priority, these numbers are expected to continue tracking forward once restrictions are eased. With employees spending additional time at home and requiring more space to incorporate workstations, many have identified the need to upsize. This factor should help continue the trend as larger family homes with additional living and work space will be highly sought after by buyers.
Land developments such as Armstrong Creek, Charlemont, Mt Duneed, Torquay, Lara, Curlewis, Clifton Springs, Drysdale, Highton and Ocean Grove are still proving popular with first home buyers. With construction still operating and most builders finding ways to work within the restrictions, land sales should remain strong in these areas. The home builder grant will specifically have an immediate effect in regional Victoria with buyers jumping at the chance to take up the $25,000 grant.
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