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Summary
- Australia based National Housing Finance and Investment Corporation (NHFIC) released research that states that pandemic could hit housing demand in the country.
- The government plans to announce home buying incentives in next month's Federal Budget.
- CBRE said that though the residential sector is showing the signs of recovery, logistics may benefit from a low vacancy in most of the markets.
Like many other sectors in Australia, the real estate industry has also been adversely impacted by the coronavirus pandemic. For many years Aussies saw stability in home prices, but because of the dramatic slump in the country's population, the prices are set to be tested from coast to coast. The immigrant is currently on pause due to COVID-19 pandemic.
Australia's national housing body, the National Housing Finance and Investment Corporation (NHFIC) has predicted a fall in demand by as much as 77,000 homes per year for the next three years. The NHFIC released research which states that the pandemic could hit housing demand between 129,000 and 232,000 dwellings over the next three years. Scenarios like these possibly put significant pressure on home values. So far, despite the economic challenges thrown by the pandemic, the home values have shown remarkable resilience since mid-March.
The Australian government plans to announce home buying incentives in next month's Federal Budget.
As per the Reserve Bank of Australia, around half a million residential properties are transacted each year. NHFIC believes that the worst-case scenario for the real estate sector would be a "reduction in the population increase, which will peak to trough – of 214,000 from 2019 to 2021".
The Australian population is declining by 0.8 per cent over the two years. It is surpassed by World War I and the unwinding of the peak of the baby boomers in 1971. Also, since 2007, the net overseas migration has contributed almost 60 per cent of population growth in the country.
Hence, a fall like this may have a domino effect on the market rent prices and the construction industry overall. The reports say that this situation may also inhibit the rebound of the economy from the pandemic-enforced recession.
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Rising unemployment impacting the Australian real estate market
The reports said that the past two recessions have shown that rising unemployment leads to a decline in natural population growth. This time, during the health crisis, Australia's second wave of infection could be a reason for another slow population growth. The situation will ultimately add to the depth of the downturn. It will also have an impact on the pace of housing demand recovery. Because of the different stages of lockdown in other states, the Australian real estate market has broken in a way rarely seen before.
The residential market shows signs of recovery
For a year, the Australian real estate market, especially the residential market showed clouds of uncertainty. However, 2020 witnessed Sydney and Melbourne experiencing strong price growth. It is expected to spread to more affordable markets such as Brisbane. The investors may gradually return on the back of low cost of debt and growing lending volumes. Apartment supply in significant cities are beyond their peak, and vacancy levels seem to be well controlled. This situation should be able to encourage property developers to start marketing their projects again and set the momentum for them in 2021.
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Australia's student accommodation sector
The student accommodation sector in Australia is dependent on not just domestic students but also the international students. Universities and independent accommodation providers faced significant effects due to the travel restrictions imposed by the government, followed by the border closure. International students account for 50 per cent of net overseas migration (NOM). These students mostly come from countries like India and Brazil, which are currently the COVID-19 hotspots. It is believed that COVID-19 recession could lead to an economic crisis, including unemployment and the exchange rate.
Notably, low housing demand, mainly because of the falls in international students will put pressure on vacancy rates and rent in inner-city suburb areas. This could further damage the speed of construction activity and eventually impact the economy.
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Outlook for 2020
CBRE Group, Inc. is the world's most extensive commercial real estate services, and investment firm commented on the real estate industry outlook 2020 in their Market Outlook publication. The firm said that though the residential sector is showing the signs of recovery, logistics may benefit from a low vacancy in most of the markets. The office sector in areas like Perth and Brisbane are showing forecasts to lead the country in terms of significant rental growth.
