Shedding Light on Market Mood in AU Property Space

The anticipation sparked after China’s largest overseas property sales portal showed that the nation’s interest in the Australian property market stays robust. Chinese investors expect Australia to become a more appealing market for property as soon as the restrictions are eased. Nevertheless, the Morrison government’s three-phase plan for re-opening the economy is likely to offer impetus to the property market, subsiding the coronavirus triggered dormancy in the near term.

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In its 1H20 results report, the National Australia Bank Limited unveiled two scenarios for the Australian property market recovery in relation to the economic adjustment to COVID-19 pandemic:

NAB notified in its April 2020 Housing Market update that the housing values have remained relatively firm in previous economic shocks before demonstrating a robust upward trajectory driven by stimulus measures like low interest rates. As per the bank, the annual housing sales plummeted by:

• 39 per cent after the 1987 Black Monday stock market crash.
• 22 per cent after the Asian Financial Crisis (1997).
• 34 per cent after the 2001 Tech Wreck crash.

Considering a rising jobless rate, plummeting consumer confidence and more cautious lending practices, NAB expects a dramatic fall in the number of residential property sales over the coming months. However, the bank also anticipates an improvement in consumer spirits and economic conditions as soon as the virus is contained, the signs of which are already visible in the nation.

In this backdrop, let us discuss some property market indicators that showcase the current state of the Australian property market:

No Evidence of a Material Decline in House Prices in April 2020

The property consultant, CoreLogic notified in its latest Home Value Index Results for April 2020, that the nation’s housing values have not yet observed any material decline despite a severe weakening in consumer sentiment and a sharp fall in market activity.

Most of the Australian regions experienced a surge in home values through April; however, the monthly pace of growth in the values in Australia dipped from 0.7 per cent in March to 0.3 per cent. The growth rate in home values plummeted amidst the implementation of social distancing measures and a decline in the consumer sentiment.

During the month, the sharpest fall was seen in Melbourne, where values plunged into negative territory by 0.3 per cent; while values in Sydney stayed positive, increasing by 0.4 per cent over the month.

Westpac Banking Corporation (ASX:WBC) expects a fall of 10 to 15 per cent in residential property prices over this year, with a subsequent fall of around 5 per cent in 2021. However, the bank also anticipates a stabilisation in property prices by June 2021.

March 2020 Witnesses Better than Expected Building Approvals Data

At the time when strict lockdown measures gripped the Australian economy in March 2020, dwelling approvals eased by 4 per cent in seasonally adjusted terms, surpassing anticipations of about 11 per cent fall during the month. As per the ABS, the fall in building approvals was driven by a decline of 8.2 per cent in private dwellings excluding houses.

On the other hand, the dwelling approvals surged by 1.3 per cent in trend terms, indicating no evident impact of coronavirus pandemic on building approvals.

According to the RBA, the fall in the seasonally adjusted building approvals in March was due to a significant deterioration in demand for new dwellings. The central bank notified that the AIG Performance of Construction Index signified a sharp decline in new businesses over recent months. Moreover, the bank mentioned greenfield lot sales remained flat in Melbourne and fell a little in Sydney during March quarter, while the cancellation rates edged up in these two cities.

The central bank expects a contraction in the dwelling investment in June 2020 quarter; however, it also anticipates a gradual recovery over 2021.

Auction Clearance Rates Improve on Consumer Sentiment Gains

As per the property consultant, the final auction clearance rate stood at 59.9 per cent in the week ending 10^th May 2020, marking the highest level since social distancing measures put a strain on the nation’s property market.

However, what’s worth noting is that the number of auctions were about 80 per cent lower during the same period. With fewer scheduling of auctions over the past few weeks, the downward pressure on the auction clearance rates has also plummeted.

The property consultant informed that the auction clearance rates improved on the back of significant gains in consumer sentiment, which encouraged buyer and seller activity. The Westpac-Melbourne Institute Index of Consumer Sentiment for May testifies the same.

As per the survey, the consumer confidence rebounded to 88.1 in May, marking the biggest monthly gain in the Index and reviving strongly from 75.6 reading in April.

This favourable outcome was driven by several significant developments that are improving the consumer sentiment, including:

• Government’s three-phase plan to ease restrictions.
• Signs of levelling out visible in coronavirus confirmed cases, with cases surging by just 10 per cent over the month.
• Milder pressure being seen on health systems than was feared two months back.

Notably, some signs of resilience are clearly noticeable in the Australian property market, with auction clearance rates picking up momentum and reopening of economy bolstering hopes of sooner restoration of business operations. However, how long will the market take to recover from coronavirus induced economic pressure needs to be watched out for.

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