property investment
Overview of Australia’s Current Property Investment Landscape, 2020
Posted on September 22, 2020 by Mirren Property InvestmentHousing is often considered the most important asset by the majority of Australians. In the country, housing is one of the largest components of wealth. As consumer trust increases in the real estate industry after the COVID crisis, we’ve seen small yet impactful changes that determine the future of housing and real estate investment. In this article, you’ll read some of the important trends that we have identified over the course of the year.
The Housing Market Has Remained Stable Despite Grim Forecasts
We’ve probably heard about the previous predictions of an incoming property market crash and significant declines. But, fast forward, September the declines have not been as steep as first predicted. In fact, more investors are confident than fearful of the long-term stability of the industry.
Despite saying this, we also don’t claim that all markets are stable. There have been markets that were seriously affected. For example, Sydney’s eastern suburbs where vacancy increased by 2.5 percent in February and 5.2 percent in June. In contrast, Liverpool remained stable despite the lack of tourists. Its vacancy remains unchanged at 2.7 percent.
Australian economic and property report also found that the Australian market has managed to hold its value. This is despite earlier predictions that prices could significantly plummet down to almost 30% due to COVID-19. After the drought, bushfires, and then the pandemic, the property market remained strong and when compared over the years, it even managed to recover in 2020.
We believe that housing remains important to people despite the crisis. Businesses may have decided to let go of their large office spaces in replace of smaller ones. However, people are still looking for residential properties and the demand hasn’t gone down. Overall, investors are confident that the property market will be resilient until the end of the year. We’re yet to see steep price falls, and it’s nowhere as horrible as per the previous forecasts.
House Prices Aren’t Falling
Stimulus from the government is also helping people keep up with their mortgages. Furthermore, people with jobs aren’t spending as much. And well-paid, white-collar employees have been safe from job losses.
Well-funded banks with the power to freeze mortgage payments are one of the key reasons for good house prices until today. They have been tirelessly supporting struggling homeowners and preventing house price decline.
House prices rise quickly and decrease slowly. According to property researcher John Lindeman, when a boom is happening, properties tend to increase in price. But when buyer demand falls, every investor waits until a buyer turns up. Sellers who find it hard to sell their properties often take their property off the market rather than sell it at a lower price. They hold it until things improve. This is exactly what’s happening in Australia right now.
There are also hardly any forced sellers right now. This is largely due to the low-interest rates that help Australians keep up with their mortgage payments. Likewise, homeowners and investors who are having financial issues due to COVID-19 have been given able to regain their loss and defer their loan payments
Currently, around 800,000 people have deferred repayments during the pandemic and experts are concerned this can lead to an “economic cliff” by the end of September when the loan deferral period ends.
A Decrease in Transaction Activity and Rentals
Perhaps, the most significant impact of the pandemic on our property market is the decrease in rentals and transaction activity.
Rental listing fell around 39% during the national stage 2 COVID restrictions in March. This pattern continued and affected sales volume in the months of April and May where it dropped 11.3% from their record last year.
Now that the restrictions have been reduced, listings are back and private sales have been looking strong. The largest rental value decline occurred in the South Sydney region where rental values have been down 4.1% six months ago.
High Price of Homes in Australia’s Expensive Suburbs
Investors will be thankful to know that most capital cities in Australia aren’t severely affected by the economy. As of now, many of Australia’s most expensive suburbs have been continuing to see price growth. Data from various research on house prices shows that premium property remained stable in price from the start of the year until July. The top Melbourne market performed well with almost 20% growth. At the same time, suburbs in Sydney also grown around 27% in price.
Unemployment is The Largest Risk to The Property Market
As many Australians face unemployment, the number of current, upcoming, and potential investors have also reduced. Based on the current data, around 3.% of the working population lost their job since March. Which was then welcomed by a surprise fall in jobless rate as 111,000 people found work in August.
If there’s a group that is most hit by the pandemic, it’s the renters. COVID-19 happened during all-time high unemployment in Australia. The rise of unemployment continued and young people are the most affected.
Particularly, those working in the tourism, arts, and hospitality industry. Rental markets are also affected due to the decline of overseas migration. A large percent of Australian renters are migrants who’ve been from other countries before coming to Australia.
Investors are Spooked, Investment Confidence is Down
Despite the improvements in the health sector, The COVID-19 anxiety is still plaguing the confidence of many current investors and potential investors. While housing is usually considered one of the safest investments, most investors haven’t experienced this kind of market downturn before.
With many auctions and open home inspections prohibited during the pandemic spread, many sellers would resort to holding on to their properties. Restoring investor confidence through stimulus packages is one solution to fix the economy and alleviate the anxiety of investors. It won’t be an immediate solution but if successful, we’ll see the positive impact of it flow into the property market.
Low-Interest Rates Can Help The Property Market
The official interest rates in the country are now at 0.25%. Experts chime in that if you want to ease another downturn, banks should cut the cash rate again.
Should You Invest in a Property This Year?
It is worthy of a reminder that property investment is always long term, and however the economy changes, people will always need good homes to stay in which guarantees the sustenance of the rental markets.
It’s clear that no matter how resilient the property market is, it’s still isn’t immune to the economic crisis. It also makes sense that many Australians are nervous.
The current economic plunge was brought by a health threat. This time the economic issue will be short-term and things will go back to normal once the scare is done.
And although the efforts to contain the virus has brought significant changes to the economy, experts are confident that soon employment will rebound and consumer confidence will increase.
Through studying the pace of recession recovery, it’s expected that the impact of this recession will be short-lived than the 1990 recession or the Global Financial Crisis in 2008.
With the unexpected changes to jobs and more, the pandemic us taught us that finance security is more important now than ever. Investment properties are integral to Australia’s economy and with a sound investment strategy, we can be better equipped for the future. Contact Mirren to book a complimentary strategy consultation.
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