As we continue to face these uncertain times, and with many question marks hanging over the impact that the current environment will ultimately have on the property market, it's important that we draw on figures from March in order to get some idea of how the COVID-19 crisis is, and will continue to, affect Australia's real estate industry.
Despite the escalating Coronavirus crisis in March, housing values continued to rise throughout the month, by 0.7%, (according to CoreLogic) however, the rate of capital gain began to slow in the second half of the month as confidence started to wane and social distancing measures were tightened.
Over the month, housing values rose across every capital city apart from Hobart (which declined -0.2%), while over the March quarter, every capital city recorded a rise in housing values. Sydney had the highest growth over the quarter with values up 3.9%, followed by Melbourne at 2.9% and Canberra at 1.7%. The lowest quarterly gain was in Darwin and Adelaide, each increasing 0.6%; a similar story occurred across the regional areas of each state with values higher over the month and quarter.
How will the property market perform in the coming months?
The CoreLogic hedonic index for March indicates a slowing of growth rates in the second half of March – the result of tighter social distancing measures announced by the government as well as the banning of open home inspections and traditional auctions. Without doubt, the longer it takes to contain Coronavirus, the greater the impacts will be on employment and the wider economy. However, with very early signs that government initiatives are potentially slowing the spread, it’s possible that the market will begin to recover in spring, after lower stock levels and potentially softer results throughout the autumn and winter seasons. Considering the unprecedented government stimulus, leniency from lenders for distressed borrowers and record low interest rates, housing values are likely to be somewhat insulated.
Which markets will fare well and which won’t?
The premium sector of the marketplace always demonstrates the most price elasticity and has been leading the pace of gains throughout the quarter. It is, of course, the sector showing the fastest decline in growth rates. More affordable price ranges will be less affected.
What will drive the market?
The property market is always driven by confidence, so it’s to be expected that rates of growth will slow in alignment with those lower levels of confidence. However, low interest rates and the likelihood of lower levels of stock available for sale will help underpin and slow any decline in values.
What will prompt a recovery?
If there are signs that the spread of the virus is being effectively slowed to levels that can be managed by the nation’s health services through April and May, confidence is likely to rebound – leading to a recovery by spring.
How can investors manage risks?
It’s vital that investors assure they and their tenants are accessing all financial support available from federal and state governments, be realistic about re-negotiating rents to retain tenants – where possible – and cut all non-essential expenditure to ride this next period out.
With the situation changing on what is seemingly a daily basis, it is difficult to forecast the consequences that the situation will present for our industry. As for right now, positive results from social distancing initiatives and an overall slowing of the spread is what will give us the best chance of facilitating the strength of the market.