Safe as houses: hopes high that Australian property can avoid Covid-19 doomsday scenario

Australia’s property market has taken some huge blows since the onset of the coronavirus crisis, with prices and rents falling in what would normally be a doomsday scenario for even the most optimistic real estate agent.

But despite the onslaught there is a growing confidence the powerhouse sector will survive the pandemic without a major crash.

Ultra-low interest rates are one reason, providing conditions that one Melbourne agent described as the “bargain of the century”. Rising savings are another as would-be buyers lucky enough to remain in work build up more of a war chest thanks to non-existent outgoings for discretionary spending such as eating out and travel.

But the main reason why the market is expected to make it serenely through the crisis is the massive government and bank stimulus that has underwritten it with a whole range of measures, from jobseeker payments, first home buyer incentives, home builder schemes and mortgage deferral plans.

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“The banks will do what they need to do to keep the market stable,” said Adrian Kelly, head of the Real Estate Institute of Australia, noting that it is not in the interests of property owners, governments, lenders or his members for prices to nose-dive.

Although Josh Frydenberg invoked the spirit of free market heroes Ronald Reagan and Margaret Thatcher this week when describing his plan to kickstart the post-Covid recovery, old-fashioned state intervention seems to be paying to keep the music playing.

In its regular economic update on Thursday, the Commonwealth Bank said that “household income continues to be well supported” by the government’s fiscal measures. It added that the number receiving jobseeker has risen since Melbourne’s second lockdown and benefit payments have risen sharply this month thanks to the second tranche of $750 stimulus payments.

It has been enough, so far, to shake off concern about falling house prices. According to research firm CoreLogic’s latest figures, they have dropped for 12 weeks in a row and many believe losses will stabilise at less than 10%, compared with much grimmer estimates back in March of 20% or even 30% falls.

CoreLogic also reports that rents fell 0.3% nationwide in the June quarter, deepening to 0.7% in capital cities. Hobart, where vacant short-term holiday lets have flooded the market, was worst-affected with a drop of 2.3%, followed by Sydney at 1.3%. That is good news for renters but not in regional Australia, which has seen rents rise as more people seek to work from home in less built-up and expensive surrounds. However, the overall decline in rents was big enough to be cited as a factor this week in the biggest fall in inflation for 70 years .

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Another sign of stress in the industry came as the number of homes approved for building by councils fell to an eight-year low in June. Approvals for units are down by an ominous 30% on the same time last year.

And yet the expectation is that the sector will weather the storm and come back as strong as ever.

Peter Hooymans, managing director of Melbourne Real Estate, which manages 4,000 homes, said April/May was tough but the business bounced back in June with a record number of leases completed as the end of the first lockdown released pent-up demand.

He expected things to pick up again for rentals as soon as the renewed restrictions were lifted and also reported strong demand from buyers who had hung on to their jobs and were benefiting from low rates .

“The sweet spot is between 600k and $1m. They are being snapped up because there’s not much supply,” he said. “If you can borrow $800,000 at say 2.5%, that will cost you around $20,000 a year but to rent a similar place is going to cost you $30,000. I’ve never seen the equation so skewed towards owner occupiers. It’s the bargain of the century.”

Kelly, the REIA chief, agreed that business had held up well despite the extremely gloomy mood a few months ago. There had been no sign of the dreaded forced sales, he said, because of the fiscal stimulus and bank support for borrowers.

The rental market was different, he said, especially in Sydney and Melbourne, because some tenants had “moved back in with Mum and Dad, there’s zero tourism and overseas students is the other factor”. On the positive side, tenants still in a job could shop around for cheaper rent.

“But if rents go down 5-10% across the board, then we’ll take that. It’s not great but it’s better than many countries.”

Jade Costello, who is the co-founder of the agency Melbourne Rental Search, said the market had stalled again but “I do see it picking up again”.

She said agents and landlords were doing everything they could to accommodate tenants, including accepting reduced rent, one landlord who agreed to install air-conditioning to secure a tenant, and others that have even waived longstanding bans on pets to make sure that they rent properties out.

“Agents are bending over backwards to take people through,” she said.

However, the crunch will come this spring as the various schemes such as jobseeker payments are scaled back or recalibrated. The banks are in discussions with thousands of borrowers about how they might be weaned off their mortgage payment holidays.

Damien Klassen, of Nucleus Wealth management in Melbourne, said the policy fallout from the crisis had not been evenly distributed. Despite recent redundancies at Qantas and other blue-chip companies, the majority of people to lose their jobs had been low-paid workers in the service sector.

Others were still in work, stuck at home, and “they’re not going out and they might be saving a fair bit of money. So there’s one portion that’s lost their job but another that is doing all right”.

“Can the government keep them going? Still keep it in the 5-10% range of property price falls? If not it’s a big leg down to the 20% range and it could end up getting out of control.”