By Herron Todd White
The Western Australian government has implemented strong support measures in order to halt the spread of COVID-19 within the state. The state has 546 confirmed cases as at 22 April, with 451 of those affected having fully recovered after testing positive, representing an 83% recovery rate. On Sunday, 5 April, the Western Australian government shut down its interstate borders for the first time in history, the second state to implement this (after Tasmania). Intrastate travel restrictions were also implemented by breaking up Western Australia into nine regions, with the boundaries of these regions manned by police and army reserves. Whilst this may sound intense, the general response of the state government has been labelled a common sense approach. Beaches throughout the state remain open and the state had its hottest April ever recorded, with temperatures reaching 39.5 degrees.
On 30 March, 44 new COVID-19 cases were recorded in the state, but on 20 April, no new cases were recorded, which was the first day of no new cases in five weeks and shows that the government’s counter measures are working to
flatten the curve and reduce the spread of the virus. In fact, between 19 and 22 April, Western Australia recorded just four new cases of COVID-19, a remarkable result.
The social distancing requirements have forced our Western Australia workforce to adapt to new procedures in order to continue to provide quality service for our much-valued clients. From mid- March, the team transitioned to working from home and given the quality of technology we have in place for our team, the transition was a smooth process, with business disruption lasting approximately five hours.
Our employees’ safety is always at the forefront of our thinking, with an ongoing message to our staff to never place themselves in harm’s way. COVID-19 has strengthened our resolve in this matter, with extraordinary precautions being required to continue to service our clients. Extensive personal protective equipment has been provided, daily reminders are in place and our staff have our full backing to discontinue any inspection where they feel there is a risk to their safety. This can be a tricky one in the COVID-19 world, but we would rather be safe than sorry.
The Herron Todd White IT department has also created a contactless inspection tool that our valuers have been using to conduct valuations without a full internal inspection – in line with the Australian Property Industry’s Crisis Protocol. This process is ONLY used if internal access is unavailable due to a COVID-19 related issue. We consider it vital that all valuation firms use this Crisis Protocol in the way it was intended and not as a way to reduce the quality of service being offered or as a reason not to travel regionally. We are more than happy to see a rigorous audit process enacted to ensure this.
How the market has reacted to the pandemic
Confidence across the residential market in Western Australia has decreased due to the uncertainty created by the pandemic. Agents in many markets have advised that enquiry rates have dropped with a higher number of offers being received below asking price. The most recent ANZ and Property Council of Australia survey, which includes developers, builders and banks, reports the lowest ever levels of business confidence. Confidence at the beginning of the year had increased slightly from the end of 2019, however once the pandemic hit, confidence levels dropped to half of what was forecast at the beginning of the year. The lowest level of confidence found in the survey was for growth in the value of house prices.
The Real Estate Institute of Western Australia (REIWA) showed a 0.5 percent increase in Perth property prices during March, indicating that prices are remaining stable for now. Property prices within the state recently enjoyed their best quarter in over six years, however this is anticipated to be short lived. The sales market is the main concern as demand is expected to taper which may lead to a period of oversupply in the market. It is expected that prices nationally could fall by ten percent over the next six months according to the Urban Developer. Prices could fall as low as 20 percent according to AMP Capital chief economist Shane Oliver in a worst-case scenario. However we are seeing an interesting trend. Listings on market as reported by numerous agents are decreasing into an undersupply situation in some areas, as sellers shy away from the idea of relocating or disrupting their status quo. This could have a short term, upward impact on values in such localities – bucking the wider state trend.
Government support locally and nationally
The Reserve Bank of Australia lowered the cash rate further in March 2020 in response to the pandemic effect on the Australian economy. The main banks in turn passed on these savings with adjusted policies to assist with home loan mortgages by offering lower interest rates as well as a deferred mortgage payment period of up to six months, which temporarily eases the financial pressure for households in Western Australia.
We’ve also heard anecdotal evidence of some lenders placing a pause on repossession activity for the next three to six months, which will assist many households, but may just exacerbate the issue for others.
In early April, the Western Australian government unveiled a $1 billion economic and health relief package to support the state in response to the COVID-19 outbreak. Some examples include the energy assistance program for household bills, having power and water disconnections lifted, offering interest free payment periods as well as waiving late payment penalties. The government has also allocated $500 million to health and other frontline essential services and expanding capacity for additional industry support in relation to the strong response to the world pandemic.
We consider that a large portion of this package is somewhat disingenuous, as it is simply pausing the proposed increase in household bills as opposed to being a genuine cost saving from current levels, so we look forward to a further offering that will make a genuine impact to local employment. We’re particularly keen to see if the state government has a plan for the residential construction industry which is being reported as only having the equivalent of seven to eight weeks worth of work left in the pipeline. If true, this could lead to another round of mass layoffs in Western Australia and have a material impact on the extent of the economic downturn. We are hearing anecdotal stories of first home buyer enquiries to major building firms being down by 50 percent and whilst there is no incentive for first home buyers to enter the established housing market, we expect their participation rate to plummet.
Economic effects of the Pandemic
Perth’s hospitality industry has suffered immensely with the government’s lockdown laws causing many businesses to close and adapt to a changed environment. The unemployment rate at the end of March rose to 5.4 percent, which was a slight increase from the previous month and this trendline is expected to continue to rise rapidly over the next few months. On 23 March, it was reported by Bradley Woods, WA Chief Executive of Australian Hotels Association, that 40,000 Western Australian employees in the hospitality industry would be unemployed. On 16 April 2020, Crown Western Australia, one of the state’s biggest hospitality employers, stood down 6000 employees as it struggled with the Coronavirus restrictions. The Chamber of Commerce and Industry of Western Australia surveyed 800 businesses and found that 85 percent experienced reductions in customer spending which contributed to more job losses throughout the state.
Western Australia is Australia’s biggest exporter of its valuable resources, including iron ore and oil, which is a huge driver for both the local and national economies. In late March, BHP announced that it was hiring 400 workers in order to maintain its production during the COVID-19 outbreak. This involved the company offering short term, six month contracts in order to cover a range of skills needed. The state’s border restrictions introduced at the end of March have forced the companies operating in the resource sector to adapt to maintain their production as well as keep the supply strong. The resource industry in Western Australia relies on 45,000 fly in fly out workers and 3,000 of those are from out of state which has led to companies such as BHP and Rio Tinto relocating employees to Western Australia to avoid the new restrictions and offering to cover the costs of moving. This has increased interest in short term rental accommodation in the state’s remote regions where the resource operations exist. Businesses in the resource industry are also looking to offer employees with revised work rosters with extended hours and shifts being offered in order to maintain productivity.
Different areas around the state have been hit harder than others, especially due to a loss of tourism. According to WA Tourism, the state’s tourism industry is expected to lose an estimated $3.81 billion from interstate visitors alone and $8.5 billion in total. April was expected to be a popular month for south Western Australia with the school holidays and Easter long weekend occurring during the month. In late March, up to 500 bookings were cancelled over a two week period in Busselton, a southern popular destination, which resulted in a 50 percent drop in short term accommodation businesses in the area. Prior to the pandemic, market conditions in the south-west region of the state were already soft due to the mining downturn in previous years and limited buyer demand. As a large percentage of this region is employed in retail, hospitality or tourism on a casual basis, the unemployment rate in the area is expected to be higher than Perth metro, with the JobKeeper and JobSeeker allowances keenly sought after.
The Kimberley region of Western Australia will suffer greatly due to the stricter border restrictions place in comparison to the rest of the state. The entire Kimberley region has been locked down with a stricter test of essential worker in place. The government identified this area and others within the Eastern Pilbara as areas of great concern, given that a potential spread of the virus in remote communities would be catastrophic. The Kimberley also holds high rates of people with diabetes, kidney disease and other conditions that make them vulnerable to Coronavirus.
Broome’s Chamber of Commerce and Industry (BCCI) said that the assistance packages provided by local and state governments were failing to reach many Broome businesses, which mainly consist of sole traders. The BCCI is pleading with the local community to support local businesses during these tough times. The government is also trying to look after remote Aboriginal communities as the health services in these areas would not be able to cope if a major outbreak occurred.
As unemployment increases, the number of Australians struggling to pay their mortgages is expected to increase. Credit Rating S&P global has warned that mortgage arrears could be higher than that recorded during the global financial crisis due to the various effects caused by the sudden disruption to the majority of the Australian economy. It is expected that mortgage arrears will rise from low levels given a recent period of low interest rates and increased restrictions on borrowing.
Property Market within Western Australia
First home buyers are particularly vulnerable at present. Those who have been stood down or had working hours reduced will suddenly find themselves unable to obtain finance and their savings may become stretched, delaying their purchase activity further. These purchasers will likely have to wait until their own situation has been resolved or the market starts to recover. Those with a secure job have been recommended to purchase a property now given the decrease in competition from other buyers and investors which tends to deter first home buyers, but we advise caution in the coming months as the market settles into the new normal. At the start of the year, the First Home Loan Deposit Scheme was introduced by the Australian government and enables first home buyers to purchase a home with a minimum of a five percent deposit from one of the participating lenders. The government has also announced extension of the government loan scheme period from 90 days to 180 days to combat the Coronavirus pandemic. First home buyer enquiry rates recorded between January and March are higher than recorded last year which shows that they are still going to be active in today’s market, depending on their individual circumstances.
This property in Territory Crescent, Baldivis is a modern, circa 2011 four-bedroom, two-bathroom dwelling situated on a generous 586 square metre block in a suburb where first home buyers are prevalent. The dwelling offers 225 square metres of living area and has a generous back yard with a gable patio for entertaining. The property is located 48 kilometres from the Perth CBD and went on the market on 18 March for offers from $419,000. The property was on the market for 13 days before going under offer for $425,000, which represents that first home buyers can secure a property at a reasonable price in the current market. This also demonstrates that if a property is marketed correctly, a sale can still be achieved during these uncertain times within a reasonable turnaround.
The prestige market in Perth is currently struggling with demand given that it is a small target market. For example, 2 Bird Street, Cottesloe is a modern, luxurious, circa 2018 built, four-bedroom, threebathroom dwelling with a below ground pool and separate studio situated in a sought after, upper class suburb. The property first went to market on 16 March with an asking price of offers over $2 million. The property sold just nine days later for $1.775 million, which was well below asking price. This is a perfect example of how Coronavirus has caused uncertainty in the prestige market given the high risk.
Real estate agents in Western Australia have had to adapt their operations due to the restraints put in place by the government to cope with the COVID-19 pandemic. Public home opens and auctions have now been banned which has forced agents to hold home viewings via video communication. Auctions are still occurring in the form of telephone or online bidding, however this form of transaction has slowed down across the nation. Corelogic recorded only nine auctions over the Easter weekend in Perth with a clearance rate of 50 percent. The average clearance rate nationally during this period was at its lowest recorded since it was introduced in 2008. Local real estate agents are also holding private one-on-one inspections with interested parties. Some agents have even gone to the limits to only speak to potential buyers if their finances are already sorted. Agents have been forced into working more irregular hours when meeting potential buyers in order to accommodate any interested parties. Marketing has been changed to target those in essential work in order to bring more business in. Buying or selling a property in Perth has become more time consuming as the processes have been extended in order to remain within the new restrictions, which has deterred a lot of competition. As with many industries at present, agents are working longer and harder, often for lower remuneration.
Households in a stable financial position and considered essential employees will have a good opportunity over the next three to six months to purchase a property at an affordable price. Prices in Perth have remained stable so far but as we move into winter, prices naturally fall slightly and given the COVID-19 pandemic, that fall may be even greater this seasonal period. Competition has decreased among buyers given the uncertainty and low consumer confidence, which favours purchasers in the current climate who can afford to purchase property. The Commonwealth Bank of Australia has currently downgraded its home price targets over the next six months and expects Perth property prices to fall by 7 percent, which will favour buyers over that time period. We stress that such a figure is only a forecast and different areas will be affected in fundamentally different ways.
Currently in Perth it is a difficult time for sellers given the decrease in confidence and growing uncertainty that the state faces in the immediate future. In the last week of March, the REIWA revealed that home sales had plummeted, down 23 percent across the entire month at just 2205 transactions recorded. There were 12,273 listings as at 10 April and a fall in dwellings, units and land listings across the board. The week’s total figure for properties listed was a 28 percent decrease on levels seen a year ago. Industry experts believe that sellers will take their properties off the market in order to ease the anxiety and favour sellers slightly in a buyers’ market currently. WA Today records that 80 percent in the Perth residential market today are selling one house to buy another, which will force quick transactions that can lead to a decrease in housing prices.
Discussions with local agents have discovered that they are recommending their clients hold off selling their properties if they can withstand the downturn in market. If people are being forced to sell due to financial restrictions, agents are recommending they exercise their best efforts to achieve the highest price. This includes brilliant presentation as well as staging through the changed viewing processes for potential buyers. Agents are recommending pricing the property conservatively and asking sellers to be as flexible as possible in order to achieve a selling price that is acceptable. Although the current conditions do not favour sellers in the Perth residential market, properties are still achieving good prices by undertaking these processes.
Foreign investment in Western Australia will decrease for the interim period as the Australian government announces that foreign buyers will now require approval from the Foreign Investment Review Board (FIRB). Thresholds for all property clauses have been reduced to zero, which means this affects all kinds of investments. All contracts entered after 29 March will require an approval and the approval periods have been increased from 30 days to up to six months. This makes foreign investment more difficult and subject to more scrutiny to determine whether the investment will be beneficial for the local market.
Investment from Australians into Western Australia is expected to slow and agents have confirmed that there has been a decrease in interstate investment. Gavin Hegney, a leading property analyst, believes that although low interest rates currently will attract people to borrow money, the fear of unemployment prevents people from borrowing. As unemployment rates and uncertainty rise, investment activity is expected to decrease. Hegney believes that people will prioritise other necessities and that real estate will be the least of people’s worries. For those in essential work and stable financial positions, it will be a good opportunity to invest with competition decreasing as well as prices.
Western Australian Planning minister, Rita Saffioti, has announced that a blanket twoyear extension has been granted for all current development approvals in order create more job opportunities once the market does start to recover. Local development activity around the state is expected to slow. Off the plan purchases have also slowed significantly of late due to the difficulty in viewing the property and a fall in confidence in the market.
During the second half of March, REIWA data showed that Perth’s leasing market maintained strong activity with the number of listed rental properties declining. At the beginning of January 2020, there were 5,767 rentals listed which has now dropped to 5,417 as at 29 March. A team leader at a local property investment firm, Momentum Wealth, said they were still receiving a high level of enquiries from prospective tenants, even with the decrease in available rentals. New rentals entering the market are said to be offering a discount of $30 to $50 per week in order to entice tenants to choose their property. Tenants are being encouraged to negotiate with their landlord for temporary deals to maintain their position in the rental. Some have provided letters from their employers demonstrating a reduction in hours worked in order to help the negotiation. The Perth rental market is considered to be in a better position than other markets facing an oversupply of properties for lease. The Premier has announced that government is looking to push through a six month moratorium on evictions, which is yet to go through parliament.
What will the future hold?
Western Australia has significantly reduced the spread of the Coronavirus and these restrictions still need to be enforced so that people do not get complacent. The effects of the virus are hoped to be limited to six months and then many expect the property market to recover, however there will be people who will continue to struggle and the economic effect on many households will be felt for years to come. The government of Western Australia and the Australian government need to expand their support and relief packages in order to help those most affected by the pandemic.
The ANZ and Property Council of Australia survey mentioned previously measured the performance of state and federal governments and found that the state government was supporting the industry better than the federal government. The survey stressed that the state government needs to focus on issues such as property tax and charges, planning regulations, housing supply and affordability in order to improve consumer confidence to combat the expected price decrease over the next six months.
REIWA has called on the government to reduce up to 75 percent of stamp duties for up to six months to maintain healthy sales volumes across the state and keep the industry ticking over.
Property group Nicheliving is offering up to $50,000 in homebuyer support in order to attract people to invest in the construction industry. The Nicheliving stimulus includes a $500 per week payment for rental assistance which lasts up to 12 months, stamp duty being taken care of as well as mortgage assistance of up to $10,000. Nicheliving said within the first week, their sales enquiries rose by 135 percent compared to the previous week’s activity. The package is targeted at supporting tradespeople, first home buyers and investors. This incentive will encourage competing builders to offer similar deals in order to revitalise the construction industry during these tough times. As always, we recommend that such offerings are closely scrutinised and professional advice is obtained, as there’s rarely a free lunch in the property industry. However such incentives do give an indication of the extent that some businesses are going to maintain business activity throughout this period. The question is, how long can it be maintained?
Speak with a Perth 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.