The property market is another Australian industry that has seen testing times amid the coronavirus pandemic. The country is going through rising unemployment, plunging income and falling house prices which are likely to result in higher saving and lower borrowing. Majority of policymakers and banks expect that the real estate sector will not pass untouched through the recession, and housing prices may decline significantly.
Housing values did not witness any material decline during April even after a sharp plunge in market activity and weakened consumer sentiment.
ABS stated that dwelling approvals fell 4% in seasonally adjusted terms during March 2020 due to the falling demand while the auction clearance rates rose to about 60% for the week ended 10 May as restriction eased in states as per property consultant Core Logic.
Tim Lawless, head of Core Logic, stated that the trend has started to weaken since mid to late March after social distancing measures were implemented. However, housing values stayed positive during April.
Let us have a look at Australia’s new building projects and rental market to analyse how the country’s property market is doing.
Rental vacancies rise
Australian rental market was already weak before the coronavirus crisis happened. After COVID-19, new challenges have come up due to the restrictions on tourist arrival and short-term rental arrangements. With the nation’s vacancy rate soaring to new highs, the rental market showed some weakness during April.
Airbnb owners are feeling the pinch with no option but to put properties into the rental market as social distancing measures compel people to stay at home. Tenants are negotiating low rents due to increasing job losses while some people are choosing to stay with their parents. There is also a pause in the flow of international students, and migrants which can result in more properties lying idle.
CBD vacancies in Sydney doubled from 5.7% in March to 13.8% during April 2020 as tenants flew away while vacancies in Brisbane rose from 5.7% in March to 11.3% in April.
Source: SQM Research
As per SQM Research, the vacancy rates increased to 2.6% in April, a rise of 0.6% from March. About one in 10 rental flats are sitting unfilled in Melbourne and Sydney CBDs.
Louis Christopher, MD of SQM Research, asserted that sudden blowouts in the rental vacancy rates for major central business districts (CBDs) show a massive evacuation of tenants during March and April. This has been due to substantial loss in employment in CBDs and decline in international students.
Sydney Tower project
The Central Sydney Planning Committee has given heads-up for building the tallest residential tower for mixed-use that will be developed by Mirvac on behalf of the Coombes Group.
The tower which will be 270 meters long with 80 floors and 507 apartments, was approved by the Sydney Council on 14 May. The construction of the tower has gone through a lengthy planning process and will link George and King Streets in the southern end of the city. The project forms a portion of $914 million revitalisation that also comprises enhancement from Event Hospitality and Entertainment alongside.
Coombes Property Group has estimated the cost of work to come out to $692 million for building the tower on George Street. In contrast, Event’s redevelopment will cost $222 million, which involves demolishing the existing building and creating a 150-meter tall building.
Some of the facilities within the tower will include childcare facilities, a rooftop restaurant and bar, boutique cinemas, conference, and meeting room facilities for the council.
The project designed by Melbourne-based Architectus and German-headquartered Ingenhoven earned the MIPM/Architectural Review Future Project Award in the Tall buildings group in 2019.
Stuart Penklis, Mirvac residential head said that the project is designed for future where residents will be able to live, shop, work and socialise, confirming the need of the city to opt for convenient lifestyles. He added that the proposal also includes a childcare facility and a facility for conducting meetings to be devoted back to the community.
Michael Coombes, property director of Coombes, stated that the project can reinvent Sydney’s mid-city zone and will make George Street pivotal for Sydney. The tower will signal a resurgence of Sydney’s mid-town revitalising the area that includes adjacent Town Hall complex and bringing it in line with Darling Harbour and Circular Quay.
The project is expected to be ‘0’ carbon ready and will push the limits of environmentally sustainable design.
Prime Minister anticipates that net overseas migration will decline by 85% and if that happens, it could imply that home building levels could fall below 1990s recession. He stated that even if the country goes through a V-shape recovery, it will not be possible to get back to February growth levels before mid-2023. Market recovery is expected with current government stimulus and low-interest rates once Australia is back to a pre-COVID-19 pace of economic growth in the coming 12-24 months.
As per Commonwealth Bank, house prices could drop between 11% and 32% by the end of 2022 under a prolonged economic contraction scenario as it prepares for an increase in damaged loans amid the pandemic.
National Australia Bank has projected an 11% fall in 2021 and more than 30% drop over the next two years in the case of severe economic contraction while ANZ has predicted a 4.1% decline in 2020 followed by a 6.3% fall in 2021.
Matt Comyn, Chief Executive of Commonwealth Bank, stated that house prices could drop due to increasing joblessness and sustained economic contraction. However, low levels of stock could avert a sharp decline in the prices in the short-term.
Persistent joblessness, loss of income and high vacancy rates can lead to selling of properties by landlords with the risk of housing prices falling looming even more profound in future.
NOTE: All figures are reported in Australian Dollars unless stated otherwise
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