Rocky outlook but Melbourne still fighting on

As fictional boxing underdog Rocky Balboa, Sylvester Stallone took a hammering from arch-nemesis Apollo Creed, played by Carl Weathers, in the classic 1976 film, Rocky. 

Late in the fight, the title character is seemingly out for the count. But as reigning champ Creed turns to salute the crowd, the dogged Rocky somehow claws his way off the ropes. 

Creed turns back and is incredulous to see the challenger standing and urging him to fight.

Melbourne, Australia’s spiritual home of sport, is the Rocky in this property story. 

But the supposedly knockout punches are not from Creed but from COVID. And, if the judges’ scorecards are to be trusted, Melbourne’s property market has somehow clawed its way off the canvas despite copping an absolute caning from its world-beating adversary.

Having weathered the opening rounds, the fight has taken a new turn with the city entering heightened lockdown conditions. 

Businesses are failing, unemployment is rising (from 4.9 to 6.9 per cent in the state in a year), immigration and foreign investment have dried up, rents are falling and an oversupply of properties for rent has formed.

But the crowd, and property investors, have been stunned to watch the market get to its feet, battered but still standing.

Median house values in metropolitan Melbourne fell by 3.5 per cent over the June quarter, following four quarters of continuous growth. With a median price of $864,000, houses in metropolitan Melbourne are still 6.1 per cent more valuable than they were at this time last year. 

Houses in middle Melbourne have recorded a strong 9.4 per cent increase since June 2019.

Units in Melbourne have recorded a quarterly median price of $621,000, 2.5 per cent lower than the previous quarter, having grown by 6.4 per cent over the past 12 months. Regional Victoria is pretty much flat.

Real Estate Institute of Victoria president Leah Calnan said the underlying strength of the Victorian market was evident, as prices had stayed firm despite sales transaction volumes declining significantly due to the restrictions imposed by the pandemic.

“Many pundits predicted doom and gloom amid crashes for Victorian property prices and that just hasn’t happened,” Ms Calnan said.

“Despite COVID-19, our market is stronger than 2019.

“Prices haven’t tumbled and any home up for sale in Victoria is swamped with interest from buyers.”

Stakes beyond property prices

Victoria’s economy is larger than Singapore’s or New Zealand’s and the property industry accounts for 11.7 per cent of Gross State Product and employs more than 331,000 Victorians. 

During the first lockdown, it proved itself an important and COVID-safe economic driver.

Property Council of Australia Victoria executive director, Cressida Wall, said property was vital to the national, and Victorian, economic recovery.

Recognising the threat the property market faces as auctions are cancelled, economic conditions worsen and prospective buyers and sellers withdraw from the market, Ms Wall told Australian Property Investor Magazine the Property Council had been working with the State Government to ensure the Victorian property industry could be maintained throughout the pandemic, and recover once the crisis is solved.

“Shepherding the property industry through the COVID crisis will boost sentiment and help offset the economic impacts caused by the second wave,” Ms Wall said.

“The Property Council has called on the state government to explore several stimulus measures, including extending land tax relief to cushion the blow on the property industry and its tenants, extending the Building Victoria’s Recovery Taskforce to keep the property sector moving – and protecting one in four jobs in the State – and implementing a dynamic strategy for CBD support. 

“The retirement living sector is also under unusually high cashflow pressure and requires specific assistance.”

Auctions have continued and clearance rates are down but not alarming. 

Melbourne's preliminary weekend clearance rate was 44.1 per cent after 197 reported price results from the 483 scheduled auctions. The tally included some 193 withdrawn from auction.

It was the second July weekend with a clearance rate in the 40s after the return to lockdown across the capital city. 

Rents were falling in inner city Melbourne, as those in the service industry struggled with employment. Inner Melbourne recorded a 57 per cent increase in advertised rental properties, compared to Sydney’s city and inner south that each recorded a 53 per cent jump. The oversupply of inner-city stock has pushed rental values down as much as 7 per cent in suburbs such as Southbank.

Rocky road

RBA Governor Philip Lowe noted in the July RBA meeting minutes (released Tuesday) that soft conditions in the rental market were expected to weigh on rent inflation for some time and property investment was likely to soften.

“Investor credit continued to contract, while credit extended to owner-occupiers continued to grow steadily at around the pace of preceding months.”

Lowe said, “credit growth overall was likely to slow in the months ahead, with commitments for new housing loans having fallen sharply in May.”

Tim Lawless, head of research at CoreLogic, said the pandemic and the resultant economic shutdown had completely changed the Melbourne market.

“Over the previous lockdown period, which was in place between late March and mid-May, housing market activity was significantly disrupted and we saw real property agent activity across Victoria slump by almost 70 per cent and the lockdown period also saw sales activity drop to the lowest level since the early 1990s,” Mr Lawless said.

More than 32 per cent of overseas migrants to Australia would normally settle in Melbourne, exposing the city to the loss of international movement, exacerbated by the added stress of tense Canberra-Beijing relations.

Property experts believe that will translate into a national fall in housing demand of around 80,000 units, with Melbourne overrepresented.

“It’s highly likely Melbourne property transaction activity will see a sharp drop over the next six weeks, with both a material decline in new listings as vendors lose confidence in testing the market, and a lower number of sales as buyers retreat to the sidelines,” Mr Lawless said.