The Nation's Capital City Outlook - A Time Of Crisis 1
There has been a seismic shift in the economic landscape unlike anything seen before.
The coronavirus outbreak arrived as the Sydney, Melbourne, Hobart and Canberra markets were steaming ahead and the Brisbane, Adelaide and even Perth markets were seeing stable growth after periods of decline or inactivity.
The latest available figures reveal that in March, all major capitals had recorded growth. The overall national growth rate was 0.7 per cent last month, as the early onset of social distancing policies resulted in the lowest monthly gain since the market lifted in July last year.
The unprecedented uncertainty of the current crisis, which could drag on for many months amidst forced business closures, differs markedly from the relatively short, sharp crunch of the Global Financial Crisis of 2007-08.
The impact this will have on the property market is an unknown but each state capital has its unique circumstances that offer some intuition into how they might respond.
API spoke to a range of property professionals in each state to gain insight into each major property market and what might lie ahead as once-in-a-century shock grips the global economy. John Lindeman is widely respected as one of Australia's leading property market analysts, authors and commentators, and additionally offers a snapshot view of each market.
Nationally, the lowest capital city quarterly gain was in Adelaide and Darwin, each increasing 0.6 per cent. Adelaide’s median home price is now $437,296, which outside of Darwin is the lowest capital city median in the country.
Peter Koulizos, Program Director and Master of Property at The University of Adelaide:
The COVID-19 crisis has put some serious brakes on the action in the property market. No general open inspections and no face-to-face to auctions will continue to severely restrict the number of transactions for the next few months, at least.
Values for houses and units increased for the month of March but this is mainly due to the activity in the first two weeks of March.
Consumer sentiment is very low but JobSeeker and JobKeeper subsidies have helped with both consumer and business confidence. Unfortunately, there will be some people who will have to sell their properties during this COVID-19 crisis and they won't be able to get the same price as earlier this year. This will present opportunities for bargain hunters.
There are two main risks for investors. Firstly, just like all PAYG income earners, there is the risk of unemployment and/or underemployment, which will decrease their capacity to pay off a mortgage. Secondly, rents will be more severely impacted than property prices so many investors need to accept longer vacancy periods and market rents lower than where they are today until the COVID-19 crisis is over.
Older investors with mortgage-free investment properties are also at risk as a six-month freeze on mortgage repayments by the banks won't help them as they don't have a mortgage.
John Lindeman, CEO of Lindeman Reports:
Adelaide has the lowest population growth rate of all our state capital cities, and the annual outflow of around 10,000 residents to the eastern states will resume once the crisis is over.
These young people who leave Adelaide seeking better or different employment, lifestyle and education opportunities will keep rent demand in Adelaide lower than in most other capital cities. The lower buyer demand also ensures that Adelaide will continue to offer the lowest-priced houses of any Australia capital city.
Brisbane’s property market recorded in March a monthly gain of 0.6 per cent to a median price of $506,553. Dwelling values edged lower over the month in the sub-regions of Ipswich and Logan/Beaudesert.
Melinda Jennison, Principal of Streamline Property:
Buyer demand has definitely dropped off significantly towards the end of the March and now only serious buyers are viewing properties amid the new private inspection requirements. Properties are still selling despite the new environment we now have, but there is more interest from home buyers than investors.
Anecdotally, we have also noticed (based on many conversations with Sales Agents around Brisbane), that the lower end of the market seems to have slowed down more significantly than the expensive end of the market. Days on market have increased in some pockets in Brisbane more than others, which is also indicative of what demographic the buyers were in certain locations.
Those with residential investments can take some comfort in knowing the State Government has announced a four-week Rental Assistance Grant covering up to $500 per week, which is now available for tenants who are in financial difficulty. This covers the period between when the restrictions came into effect and when many individuals may be entitled to either the JobSeeker or the JobKeeper payments from the Federal Government. This provides some level of reassurance for property investors in Queensland.
The REIQ has also proposed some significant reforms to continue to support and stimulate the property market, including extending the First Home Buyer's Grant to established housing, implementing a 50 per cent reduction in development application costs and delivering a 75 per cent reduction in stamp duty during the period that we are impacted by COVID-19. As well as this, there are further stamp duty concessions proposed for a period of up to 18 months. These are not yet approved by the State Government but it is a good start.
High numbers of overseas migrants and interstate arrivals to Brisbane from Sydney, Adelaide and Perth will resume once the current crisis is over, and rents should start to rise significantly. This will then flow into buyer demand in lower priced suburbs, and overall price growth should be strong.
Prices are already rising in the more affluent riverside suburbs which have now completely recovered from the lingering effects of the disastrous 2011 flood, and this indicates that good price growth should flow to other areas of Brisbane.
Canberra has experienced the highest quarterly growth (1.7 per cent) outside the boom towns of Sydney and Melbourne. Its annual price rise of 4.7 per cent has lifted the median property price to $626,932.
One city that is likely to boom during the current crisis is Canberra, as there will be a dramatic rise in public servants needed to establish and administer the government’s stimulus packages. Canberra’s housing market often performs contrary to the other capital cities during economic downturns for this reason.
The movement of public servants on short term contracts into Canberra will push rental demand higher, especially for high density units along the northern growth corridor, with its recently completed light rail connection to the CBD.
Darwin’s median property price sits at $392,348, following an annual decline of 5.4 per cent.
Darwin is the only capital city that has suffered from a decline in its population in recent years and although this is temporarily on hold, housing demand will drop once again when the crisis is over. The city’s rental market relies on large numbers of logistical support personnel living in Darwin.
The last of our peacekeeping engagements in Afghanistan and Iraq are about to end, and given the current crisis, it is unlikely our government will commit to others until the economy has fully recovered, even if the need should arise. This will lead to continued price and rent falls in Darwin.
Hobart has experienced rapid price growth over the past few years but signs of a retreat are evident. Over the month, housing values rose across every capital city apart from Tasmania’s capital, which declined 0.2 per cent.
Tony Collidge, Director and Manager of Research at PRDnationwide Hobart:
The real estate market in Hobart is doing ok. We were blessed that our local market was well positioned prior to COVID-19 taking hold.
In relation to the pandemic, the Tasmanian Government has been one of the most aggressive, being the first State to close its borders and to introduce strict 14-day quarantining and 120-day non-eviction of tenants.
Sales activity did start to drop away towards the end of the month. There has been a marked decline in investment enquiries and activity. With Australia's best performing Capital city rental market, this has been interesting to observe. The drop in rental acquisitions has been countered by an influx of Airbnb properties to the longer-term rental market, taking Hobart’s vacancy rate above 1 per cent for the first time in four years.
Property sales have slowed at the top and bottom end of the market. There is still strong support for properties in the middle price ranges ($300,000 to $600,000).
There's a good pool of qualified and bank approved buyers who are keen to purchase if they can find the right property. While sales enquiry levels have dropped off significantly, sales volumes are only down 15- 20 per cent.
Investors who make up most of this decrease appear to be holding off buying while the tenant non-eviction period remains in place. We are just starting to receive tenant requests asking for rent relief. Obviously, our dependence on tourism and tertiary education has seen many businesses grind to a halt but this is counterbalanced by a significant proportion of our workforce being employed by the three tiers of Government.
I believe Hobart is well-positioned to come out of the COVID-19 Crisis ahead of most other regions and for once the moat we have around us is working. I believe we will not see any significant drop in Hobart property prices or rents over coming months. Low vacancy rates and limited supply will hold the market in good stead.
Hobart’s price growth has weakened in recent months and this is not likely to change in the foreseeable future. The state has suffered more than any other from the total collapse of the tourist industry, which is generating rental vacancy surpluses and causing asking rents to fall in many Hobart suburbs.