While a cloud of uncertainty hangs over most parts of the global economy, it also hangs over the Australian property market. The rental markets in Sydney, Melbourne and Brisbane are showing strong downward movements, and rents for apartments and houses have deteriorated significantly since the end of 2018. This chart suggests that the most expensive areas of Sydney and Melbourne and Brisbane have the highest volatility and are the first to see the direction of price change. In this historic cycle, the “most expensive” part of Sydney and Melbourne appears to be leading the current downturn.
While the housing market is unlikely to be the cause of the next recession, the economic downturn will have an impact on the US housing sector. For someone who wants to buy a house and then turn the pages immediately, it may seem a bit difficult because it is not clear where house prices are going. But if the worst happens, we may well see a return to pre-recession levels of house prices.
Sydney is currently oversupplied and there is already downward pressure on rents. Brisbane property prices are 55 per cent higher than Sydney, while household incomes are only 12 per cent lower, underpinning the value of Brisbane properties.
Sydney and Melbourne will see house prices rise every year until March 2020, as you can see in the house price chart below. The Sydney and Sydney home price index remains well above the 12 months before, and now Melbourne is also in the mix. On the suburban level, the biggest price declines have been in the areas where the downturn has been most pronounced, and the incipient declines in this category are in Sydney’s CBD, inner-west Melbourne and the outskirts of Brisbane.
While townhouses, villas and upmarket units should hold up well and most Melbourne residents are still in work and will not sell because of the Corona virus, some of the more expensive properties, such as townhouses and villa units, have suffered.
On the other hand, Queensland’s economic and property market should benefit from more local travel by Australians once the travel ban is lifted, although overseas travel is likely to continue to be restricted. Home prices in all of Australia’s major cities should reflect this, with NSW, Sydney and Melbourne leading the price increases through 2021. House prices and sales plans are likely to be slow, but we will see prices for affordable starter homes continue to rise in double digits while the overall housing market is near or just above inflation. Sydney is likely to outperform Melbourne, where job losses are greatest and new supply is much higher.
The tight inventory has made it difficult to find homes and real estate agents have had to do business with properties through private viewings, where potential buyers and tenants look at the properties, said John O’Neill, the chief executive of the Australian Property Association.
While it is too early to assess the long-term impact of the scarce supply of office space in Melbourne, tenants are expected to seek greater flexibility in leases when revaluing office space, which will affect occupancy and rental growth in the medium term, he said. Decentralised offices are also likely to be more resilient, although a number of tenants may consider moving to decentralised locations to reduce property costs.
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Last year, Melbourne house prices recorded the biggest increase on record, reaching a new high in March 2020. HTW points out that while Sydney property prices fell 0.9 per cent last month, they are still well above their all-time high of $1.2 billion in January 2016.
If house prices remain stable now, the COVID-19 crisis has halved the number of real estate transactions, which has spawned real estate pessimists and doomsday advocates. If the Australian economy comes to its knees, the coronavirus will wreak havoc there and the duration of the closure of the coronaviruses will determine what happens to Sydney property.
Sydney will see fewer property transactions and those who don’t need to sell will put their homes on the market. In other words, stock market volatility will lead investors to view real estate as an alternative safe investment vehicle to support Australia’s 7 million homeowners.
The Melbourne market is strong and the vacancy rate is not that high, so many motivated sellers will list their properties. The pessimistic forecasts in the property market may deter some homeowners, but there is no doubt that the coronavirus will increase the caution of many buyers and encourage many sellers to hold back.
If the coronavirus is under control it will directly affect the problems of the global economy, but Melbourne properties are very resilient and hold up. If Australia goes into an economic downturn, house prices will fall, but the property market as a market share is doing better. The previous downturn in Sydney’s housing market, which resulted in a 15% fall in house prices, has led to a significant increase in affordability, which has been a major factor in Melbourne’s housing market growth in recent years.