We all know what the easing of COVID-19 restrictions looks like for us - especially our social lives - but will it be just as good for property owners and the property market?
In this blog, we’ll take a look at some key factors which will affect market conditions, particularly, for property investors.
Understanding the good, the bad and the unknown of restrictions easing will help property owners make decisions that will set them up for future success.
NSW, VIC & QLD restriction easing
After two years of scattered lockdowns, the eastern coast of Australia is easing COVID-19 restrictions. For an average joe, this means popping by into your local pub, but for an investor, it means the opportunity to secure their rental returns. Restrictions easing has also been paired with the return of international students and vaccinated travellers from the 1st of December 2021, meaning the demand for a property will rise and so will the cost of renting.
So what can property owners expect from the easing of restrictions and the incoming batch of international students?
Let's take a look at what the future might look like.
Physical auctions and inspections allowed
You can’t beat viewing a house before you make a bid. And luckily for the first time in a long while all states and territories are allowing in-person inspections and live on-site auctions for fully-vaccinated people. A return to a physical market will help uncertain buyers over the line and uncertain sellers the confidence to put it on the market.
Clearance rates were hardest hit in metropolitan Melbourne during lockdown when in-person inspections were not allowed. They hit an all-time low of 35 per cent but are now back up on par with Sydney around 77 to 79 per cent, above a regular 60 per cent market. Restrictions easing will possibly attract more bidders with fewer auctions being pulled last minute.
Tenant movement to increase
One thing is for sure; people will be on the move… and for a number of different reasons. Those who’ve lost their jobs or are wanting to quit work; those who need a home office or have been separated from family for far too long. And we expect this flurry of activity to continue well into the second half of 2022 as tenants’ leases expire and owners’ sell...either willingly or due to no other choice?
Then there is the Great Resignation phenomenon sweeping the world which is expected to hit Australia by March next year after the Christmas fattening up period. Up to 40 per cent of people are considering quitting their jobs. What will they do? Will they move? Will they stay in the same area and find a different job? This could have a huge impact on demand for property and the property market. Price may not be the biggest consideration for relocations.
Lockdown also forced people to work from home and it is predicted they’ll want to continue to do this. Temporary set-ups on kitchen tables will be traded in for a dedicated home office. Around 40 per cent of Australians are currently working from home. And global statistics say this is set to keep going up with 76 per cent of global employees wanting to continue working from home on an average of two days per week. So, what does this mean for the property market? Continued remote or hybrid working means less demand for a property close to CBDs, further aided by the lack of incoming students, prices may be hit if there is a mass exodus.
Losing a tenant, especially a good tenant, is never ideal but you shouldn’t worry too much about filling your property in a short period, especially if you have a property manager with great tenant experience. With NSW restrictions easing, Victoria easing restrictions and Queensland restrictions easing, rental demand is increasing once again. Rental vacancies have dropped to 1.7 per cent nationwide with Melbourne (3.4 per cent), Sydney (2.4 per cent) and Brisbane (1.3 per cent) all down, while Perth, Adelaide, Hobart, Canberra and Darwin have traditionally always been tight and remain below one per cent.
Regional areas are red hot
Interest in the regional property will continue to climb especially now city buyers can inspect. It isn’t a tree change; more like a future lockdown barrier. People have had enough of hard lockdowns in cities and don’t want to go through it again. During August, more than 57,000 travel permit applications were received in NSW from Sydney-siders keen to inspect real estate in the regions. Days on the market for homes has already halved across many NSW areas. This frenzy once NSW restrictions ease further may turn into a stampede.
This spike in interest from city dwellers – as well as very limited supply - has also pushed up regional prices. For example, a two-bedroom flat in Wodonga, Victoria bought in 2018 for $152,000 was recently appraised to go to market for $220,000 to $250,000 despite comparative market analysis valuing it at $166,000. A $68,000 or more than 30 per cent gain in three years is unheard of in a regional area; making it an opportune time to sell and reinvest. To put it in perspective, a Melbourne buyer trading a two-bedroom unit in Northcote with a median value of $660,000 would have $440,000 to spare.
That being said, major cities have not slowed down either, with the growing suburbs of Adelaide, in particular, seeing tremendous demand.
High prices – for better or worse
Prices should be steady…right! Let’s face it, prices have skyrocketed by more than 20 per cent on average in the past year. Since the annual median growth rate for property in Australia was 5.9 per cent pre-COVID, this almost makes your eyes water…especially if you were in a position to cash out on these insane prices. With restrictions easing, this extraordinary property boom or bubble is slowing. The big question everyone wants to know is: Will it pop? Will prices come crashing down? The experts latest advice is that it will not. There are many factors as to why, but if you are thinking of selling your investment property, think beyond just the pandemic and factor in other market conditions.
2022 (4.3 per cent) and 2023 (3.8 per cent) predictions are looking much slower but equity gains look here to stay. The downside is the rapid increase has pushed prices to the point of unaffordability and lending restrictions have been required to subdue prices during such an uncertain period of time. If you’ve held your investment this long, be sure to revalue your portfolio now as it may just give you a favourable enough loan-to-value ratio to add another property into the mix.
People have been wary of making any changes during lockdowns which meant a short supply and sharp incline. It is unclear how the extended lockdowns have affected the economy and unemployment fully with double figures predicted by year’s end. One thing is for sure, there will be people who have struggled financially and will be forced to sell meaning more properties will enter the market. Financially distressed sellers are expected to bring the prices down, not instantly, but they will contribute to slowing house price growth.
No more government rental amnesties
Some property investors were affected more than others by measures put in place by State Governments. The easing of restrictions means property owners can reassess their rental income and demand market price once again if they have not already done so. Be sure to check as median weekly rents have increased by some 15 per cent during the past year with a further three per cent predicted nationally each year for the next two years. The most locked down state in the world – Victoria – will see the least growth; less than two per cent during the next two years. So, if you’ve had a good tenant throughout all of this, hang on to them.
Property owners have watched the state governments’ handling of the pandemic and have probably already ruled out states and areas they do not want to invest in any further. Still, future property market movements from the easing of restrictions may reveal some golden opportunities, so do your homework and be ready to pounce.
Returning students and expats
Demand for rentals near universities will skyrocket once more with local students and international students expected to re-enter the fold before the end of 2021. Local students will also return to physical classes and part-time work and will be keen, once again, to move out of the family home and return to their independence.
Those locked out (not locked down) will also impact the property market in some way. Returning expatriates have had a long time to think about their return to Australia, whether permanent or for a short period. One in seven (15 per cent) homes sold across Australia since early-2020 has been purchased by someone living overseas. The opening of international borders will see an influx; just how many require a crystal ball. On top of this, a plan for skilled migrants and visa processing can’t be too far away.
Rightly or wrongly, most property owners decided to hold during the uncertain COVID-19 period despite the windfall they may have gained (especially on multiple sales). However, with restrictions easing and more certainty in the property market their decision to pack up and sell may have nothing to do with prices and everything to do with needing a change or not being able to pay the mortgage. There will be more willing (or desperate) sellers to match willing buyers. This would support those who predict the property market will level out at its peak pandemic price point into stagnation, however, the unknown is exactly that and as Australia navigates its way back to the rest of the world we sit patiently and wait. Our best advice: Keep checking the property market and the health of your portfolio to understand when to hold, sell or buy. No one wants regret and dwindling equity 12 months or two years from now.
Want to stay up-to-date with all things real estate?
Subscribe to our FREE monthly newsletter for the best property content on the internet!
Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.