How deep the shroud of joblessness and Income uncertainty eclipse the Property Market?

  • Jul 27, 2020 AEST
  • Team Kalkine
How deep the shroud of joblessness and Income uncertainty eclipse the Property Market?


  • The implication of job losses on the Australian property market seems to be overriding the low cash rate of 0.25% held by RBA. 
  • The unemployment rate in the country, which has increased from 7.1% in May to 7.4% in June, could be further impacted by phase 2 lockdowns.
  • Home prices dipped by 0.7% in June; however, sales and auctions uptick cannot be ignored.
  • While tightening of JobKeeper scheme impacting income uncertainty seems to be a major headwind, First Home Loan Deposit Scheme and economic revival prospects are closely eyed as potential tailwinds.

The financial carnage escalated by virus fear seems to knock out the growth accumulated through years of development and dedicated policy initiatives. With COVID-19 on a rampage as cases skyrocket, the Australian property market seems disturbingly perturbed by the blow.

While home prices sipped 0.4% in May, the trend continued in June with prices slashed by 0.7%, as per CoreLogic latest data.

In the current upheaval, the uncertainty regarding financial security across Australia is off the charts, leading to wavering interest of potential homebuyers who had earlier appeared fascinated with the purchase prospects. 

Even the historic low cash rate of 0.25% held by RBA seems to falter against the exceptionally high unemployment rate, which is fuelling inertia among the prospective home buyers and property clients.

 The unemployment rate in Australia has hit 22-years high, as suggested by the latest Labour Force data released by the Australian Bureau of Statistics. The Australian statistical agency reported that the unemployment rate in the country surged from 7.1% in May to 7.4% in June. 

Furthermore, the ground state scenario can be much worse compared to the official rate. Many Australians who have either given up hope of finding jobs or continues to live under poverty might not have registered as unemployed. Although, the experts believe that this proportion of the population does not represent the potential homebuyers. 

ALSO READ: Will there be a Revival of Real Estate Sector in Post Pandemic Era?

Current Property Market Scenario

The emerging indicators of the Australian real estate sector appear to signal a considerable impact of the pandemic on property values. Restricting on-site actions and filed-based inspection of properties impacted the property market during lockdown despite property players utilising digital aided moves for supporting their faltering businesses. 

While phased reopening in the majority of Australian cities revived the on-site auctions, the housing market still faces a severe significant challenge due to economic contraction. 

The property market in Australia continued the downward spiral with all the five capital cities witnessing a decrease in the dwelling values in June 2020. As reported by CoreLogic statistics, Melbourne and Perth remained at the forefront of decline, recording its ‘all dwellings’ prices decreasing, by over 1%. 

However, on the positive note, all the major cities edged up on the year-on-year basis with ‘5 capital city aggregate’ marking an uptick of 8.62%. The value of property units in Sydney and Melbourne have grown by 10.6% and 9.3% respectively. 

The last week ending 19 July 2020 recorded the weighted average clearance rate of 53.1% as indicated by the data of CoreLogic. 

Besides, the property space witnessed  arebound of 29.5% in property sales, as against 21.5% gain in May.

Headwinds for the Property market

Faltering Sentiments

The brunt of job losses has culminated in the creation of financial and psychological hindrance for housing decisions.

The residential property survey conducted by the National Australia Bank indicated that housing market sentiments witnessed a 71-point fall in the second quarter, slashing from 38 points in the first quarter to -33 points in the second.

The contraction in the business activities owing to the pandemic seems to have a spillover effect on the property market, especially across economic powerhouses like Melbourne and Sydney.

Jobkeeper Subsidy not as Magnanimous

The substantial fiscal and monetary stimulus has provided a certain degree of momentum to business confidence, aiding in maintaining income flows for the employees.

The tightening of the Jobkeeper subsidy scheme, which remained at the centre of the stimulus, can further generate challenges for the employment scenario. Although the Government has decided to extend the subsidy till March 2021, (earlier due to end in September), there has been a substantial reduction in the subsidy amount. 

ALSO READ: JobKeeper 2.0: 5 Things to watch while Card Spending reflect different trends

Income Uncertainty around Rental Spaces

The property boom witnessed by Australian cities in recent years has been backed by international students and overseas workers, occupying the rental spaces. However, border restrictions leading to a lack of foreign workers and students have affected the rental market across Australia. Furthermore, many workers as they work from home have decided to shift to regional areas from the expensively rented cities, further causing an overall decline in rental cash inflow for the owners.  

ALSO READ: Firms Like Remote Working – Commercial Real Estate A Big Short?

In the absence of a steady flow of rental income, the mortgage owners may decide to sell their homes. Besides, mortgage holiday is also coming to an end, which puts substantial burden concerning the mortgage payments as banks have been warning the borrowers to sell their properties, in case they are not able to meet the requirements. 

Amidst such a scenario, the Housing Industry Association (HIA) has predicted that the housing construction next year could reduce by ~50%. 

So, where is the Silver Lining?

Income of Prospective Buyers yet retained

While unemployment statistics indicate a bleak scenario, the property players can breathe a sigh of relief since many of them losing jobs may not be the potential homebuyers.

Bjorn Jarvis, head of labour statistics at the ABS commenting on May unemployment stats indicated that job losses had primarily impacted young workers. While, a large proportion of the home buyers are generally above 25 years, demonstrating that many of them can be in a position to purchase the property, once the viral paranoia subsides.

First Home Loan Deposit Scheme

The Federal Government’s First Home Loan Deposit Scheme has come as a significant aid for the Australian real estate sector. The Government has opened 10,000 more spots for the first home buyers following the opening of the scheme to 10,000 buyers in the first half of 2020. Under the scheme, people can get a loan with just a 5% deposit, without any requirement for mortgage insurance.

Australia better placed than others 

Australia, despite a recent spike in the virus cases still, has fared far better than many other countries which seem to be hard hit by the pandemic. Australian GDP dipped by 0.3% in the March quarter, while many European countries and the US faced` severe downfall in the economic activities. 

ALSO READ: Surging COVID-19 cases and extended border restrictions: Potential impact on Australian journey to economic recovery

Organisation for Economic Co-operation and Development (OECD) expects that the Australian economy would perform better compared to other countries. Despite the better-expected outlook, Australia is still likely to suffer the economic implications, with subdued employment prospects for the next two years. Nevertheless, the anticipated gradual increase in economic performance could have a positive impact on its property and housing market. 


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