Property market update: Auctions roll on amid virus chaos

Property market update: Auctions roll on amid virus chaos nmprofetimg 1420

It was the last weekend living life as we know it for a while, as the Australian government moves to close down certain public gathering spaces from noon today.

Despite the current uncertainty due to COVID-19, auctions in Melbourne and Sydney remained strong this weekend with 1,192 in Melbourne and 725 in Sydney.

auctions   Property market update: Auctions roll on amid virus chaos cq5dam

It was Super Saturday in Melbourne despite the coronavirus. Picture: Getty.

Clearance rates have also held strong, despite dropping below 70 per cent in both New South Wales (69%) and Victoria (65%).

Clearance rates aren’t always the best indicator of the market as they primarily reflect the top end of the market in Melbourne and Sydney.

However, as we continue to wait for solid search activity trends and pricing data to provide an insight into how Australian property is faring amid the virus crisis, clearance rates are the best gauge on buyer confidence.

Right now, property is holding strong.

The most viewed property that went to auction was 124 Ruskin Street in Elwood. This beautiful home had a price guide of between $5m and $5.5m and sold at the top end.

All this stimulus is great news for property

Prime Minister Scott Morrison announced a second-round $66 billion stimulus package yesterday, building on the measures included in the first $17.6 billion package.

According to the Government, the total economic assistance package is worth $189 billion – equivalent to 9.7 per cent of Australia’s gross domestic product.

While it doesn’t have a direct impact on property, the multi-billion dollar lifeline will support the economy and therefore the property market indirectly.

The RBA rate cut will have a direct positive impact on mortgage holders and will provide cheaper finance for those looking to buy. The central bank has also launched support packages for small and medium-sized businesses and lenders, which won’t impact property directly, but again will support the economy.

Unemployment poses the biggest risk to property

We’ve already seen some major temporary job cuts across Australian industries, including at Qantas where a third of Qantas and Jetstar’s 30,000 staff have been stood down.

If more people start to lose their jobs, it could lead to an increase in distressed sales.

The good news is, the stimulus packages are making home loans cheaper but will ideally minimise people becoming unemployed.

The border shutdown will impact foreign purchasers of Australian property and is likely to have some impact on the new homes market. However, offshore buyers have been a small component of the market since 2017.

Will there be a price drop for prospective buyers?

While there are a lot of people watching for prices to fall dramatically so that they can grab a bargain, at this stage, I don’t believe that will happen.

This is a short-term health emergency and the amount of stimulus being pumped into the economy is extreme with the government laser-focused on stemming job loss. 

At this stage, mortgage payment relief for those impacted by COVID-19 has not been mandated in the same way it has in many other countries, although we have seen major banks start to offer it independently. This could be a possibility if we start to see large numbers of distressed homeowners.

In the UK, there has been a total ban on evictions of renters for three months. A similar scheme is likely to be under consideration here in Australia.

Australia has no shortage of money

We may be going through a health crisis that has put a crunch on productivity, but there is certainly no shortage of money.

In addition to the interest rate cut, the RBA is starting quantitative easing and banks are ready to lend.

Australia has cash   Property market update: Auctions roll on amid virus chaos GettyImages 1074919568 1

Money has far from run out in Australia. Picture: Getty.

For property, all of this is very good news. And it has, in fact, dramatically changed my view as to the outlook for the property market in Australia. 

While property buyers and mortgage holders love a rate cut, the aim of recently announced stimulus packages – at both federal and state levels – is aimed to ensure three things:

  1. As many Australians remain employed, but if we lose our jobs temporarily, we are able to meet basic payments (rent, mortgage, utilities etc.)
  2. Firms don’t go bankrupt
  3. The productivity problems don’t turn into a financial crisis as non-performing loans increase

What could be the fallout for commercial property?

Unlike the residential market, where the stimulus package will have a positive impact, the outcomes for commercial property are more complex.

Right now, hygiene measures across all property types are critical and it is likely some tenants and owners will require rent or mortgage relief. 

But which groups are the most at risk?

Hotels

Hotels, in particular, are highly vulnerable given the plummet in tourism numbers. At this stage, border shutdowns are particularly bad news and forced isolation will be an ever-greater challenge.

Offices

Many offices aren’t occupied right now but all tenants should be able to pay rent for the short term. We are likely to see rising vacancy levels and a softening of yields – but it is the longer-term impacts that are more interesting.

Most companies have now had to enact working from home procedures, and it is likely some companies could continue this post-COVID-19, requiring less office space.

Shared office spaces will potentially be seen as a much higher health risk. This puts in to doubt the future of We Work-type models while hot-desking will require far more stringent cleaning procedures.

Retail

The retail sector was doing it tough prior to the coronavirus outbreak, but we are now seeing vastly different performance for anyone selling non-discretionary products (particularly supermarkets), as well as home entertainment (e.g., Harvey Norman, JB HiFi).

retail store  Property market update: Auctions roll on amid virus chaos cq5dam

Retail could make a comeback in COVID-19 recovery. Picture: Getty.

On the other hand, it is an incredibly tough time for cafes, restaurants and fashion retailers. Once things settle down, we will ideally see a positive result of stimulus measures on retail spending, which will help retailers and shopping centres.

Industrial

The industrial sector will be hit by a general economic slowdown and is probably already struggling with supply chain issues. Overall, industrial property is one of the property types more immune to the COVID-19 fallout.

Developments

Development site demand is likely to be limited and the eventual outcome will depend on what happens with the established residential market.

The new home build market was starting to pick up early this year, but a slowdown can be expected over the next two months.

Offshore demand is unlikely to pick up for a long time, but this hasn’t been a big driver of the new home market for quite some time.

Demand for new homes will again closely follow the recovery of established housing once the COVID-19 crisis is over.

Medical

One very strong sector of commercial property will be medical-related property.

Right now, there are issues around capacity and hygiene measures but there will be a lot of investment in this space post-coronavirus, to ensure Australia is well-equipped to cope with future health emergencies.

Overall for the investment market, there is no shortage of money, and it is likely many potential buyers are looking closely for opportunities.