The global spread of the coronavirus has caused a slowdown in the global economy, instantly affecting the real estate market in Australia. Six months after the first confirmed case in the country, the magnitude of the impact caused by COVID-19 is not entirely clear.
An intense drop in international arrivals, increasing unemployment rate, a reduction in consumer confidence has triggered negative reflexes, particularly in the rental market. Investors are experiencing rental renegotiations and higher vacancy rates. With all that is actually happening and many pessimistic predictions, a million-dollar question people are asking - “Is the real estate market about to crash?”
Market forecasts are not unanimous. For some, the sector will continue to grow, even if at a slower pace; for others, retraction is inevitable.
Considering the complexity of the current scenario, we would like to outline some of the key indicators and measures to relieve the impact of COVID-19 in Real Estate sector in Australia, especially in Victoria.
Resilience of Market prices
Melbourne house market is holding firm. House prices have experienced a much subtle reduction than the 30% fall suggested as the worst-case scenario at the beginning of the pandemic. The past few months registered a decrease in the volume of transactions. However, there is a still strong demand for properties, with newly listed properties starting to pick up.
According to the latest REIV reports, houses in metropolitan Melbourne are 6.1% more valuable compared to June last year, with prices falling by 3.5% over the June quarter. When it comes to units, Melbourne medium price has grown 6.4% over the last 12 months. Compared to the last quarter, there was a 2.5% reduction. Houses are selling quicker than 12 months ago.
Mortgage Holidays Extended
Since March 2020, many lenders in Australia, including CBA, ANZ, Westpac and NAB, are offering a break on mortgage repayments for families affected by COVID-19 outbreak.
The mortgage holiday, which was initially planned for a period of 6 months, was extended until January 2021, a measure to support Australia’s economic recovery.
Banks affirm that these payment breaks won’t affect credit rating, supporting property owners during COVID-19 crisis.
Lowest interest rates in the Australian history
Banks reduced rates towards the 2% mark, which led Australians to refinance like never before. For new purchases, it means that you can get a home loan for a much lower rate now, both for variable and fix rates.
According to Finder’s database, the lowest owner-occupier 3-year fixed rate has plunged from 3.74% in April 2019 to 1.99% in July this year.
How is the Government coping with this crisis?
Support for Construction Sector
For boosting Construction Sector in the wake of the Coronavirus crisis, the Australian Government has designed a federal scheme that provides a $25,000 tax-free grant for eligible Australians who are building or renovating their home. The HomeBuilder incentive was boosted in some states such as WA and TAS with an extra $20,000 cash for prospective home buyers. Schemes like these highlight the importance of the construction sector and outline the public interest in speed up its recovery.
Massive stimulus injection in the Victorian Infrastructure
On May 18, Victorian Government announced a $2.7 billion construction blitz to upgrade public housing, schools, train stations and roads, as part of the Building Works Package.
As infrastructure pushes up property values, these measures will impact on real estate prices positively besides stimulating the economy and creating 3,700 direct jobs.
Considering the support that the Australian Government is providing to mortgage holders and the construction sector, it is unlikely that Melbourne properties prices will plummet drastically, as predicted in the first months of the coronavirus outbreak.
Even with reduced rent values and increasing vacancy rates the rental market in major cities, especially in Sydney and Melbourne CBD precincts, landlords have been able to weather the storm and hold on to their properties.
Creating a property portfolio is a long-term investment and requires long-term strategy.
If you are concerned about the potential impact that the coronavirus outbreak may have on the profitability of your investments, we can develop a tailored solution to address your needs.
We would love to talk to about opportunities to invest wisely, enabling you to secure your financial future.