New bank lending rules could spark a “V-shaped recovery” after Covid-19
Two major questions are currently top-of-mind for investors, owner-occupiers and those looking to buy property. What will be the true impact of the Covid-19 pandemic on demand for residential properties and on home values? And if a bounce-back recovery occurs in the near future, will it happen quickly or at a more measured pace?
Nelson Alexander Sales Director Arch Staver says it’s more likely than not that buyers and sellers will see a fast-moving “V-shaped recovery.”
Under this scenario, Nelson Alexander anticipates that both prices and demand for properties will spike up once many businesses and public-sector organisations reopen and return to offering their normal range of services.
Mr Staver says the big difference between the coronavirus’ impact on the real estate market and earlier market shocks such as 2008’s Global Financial Crisis and the Australian recession of the early-1990s, is low interest rates.
“We have incredibly low interest rates,” he says. “So if employment gets back on track, which we fully anticipate in sectors such as hospitality, there will be a genuine enthusiasm for property transactions.
“The banks are also going to be looking at increasing their income. They are going to be lending strongly – there is little doubt in our minds that the lending tap will be flowing.
“That is fundamentally the difference – the cost of money is going to be considerably lower compared to the recoveries that happened after the GFC and earlier shocks to the market.”
Fears about coronavirus are clearly affecting some sellers and buyers. If you add to this mix the fact that street auctions have been temporarily suspended by the Federal Government and attendee numbers at open-for-inspections limited to two people, it’s easy to see why some in the community are sensing an Armageddon moment for the property market. However, with the introduction of virtual Auctions Nelson Alexander have adjusted to the Federal Government rules and are producing results.
The residential property sales are driven by a basic human need – the need for shelter. This makes the housing market quite different – and, generally, more resilient – compared to other asset classes, such as the stock market.
Little wonder that the property market has bounced back after other shocks, from credit crunches to recessions and stock market crashes.
Currently, demand for quality properties in the inner suburbs is holding up well. The buyer pool for these types of homes is at the same levels seen in late-2019, and larger properties in sought-after locations are selling under competition for strong prices in off-market transactions.
The fundamentals of real estate remain positive, even during this period of uncertainty.
Apart from record-low interest rates, population growth has been on the up-and-up, and Australia is building significantly less properties to house that growth. It’s a recipe for a shortage of properties, particularly in Melbourne’s tightly-held and amenity-rich areas.
One of the critical differences between the Covid-19 circumstances and the past market turbulences is the multi-billion-dollar government response to assist Australian people and businesses.
“Every day, we see more willingness from buyers because the news is encouraging, particularly in Victoria where the early signs are that the curve is flattening,” Mr Staver notes. “It shows to people that we are very likely to get through this.
“We are reasonably confident that it will be a V-shaped recovery because interest rates are extremely low. We saw a V-shaped recovery following the banking royal commission.
“When funding slows up, it is always the greatest obstacle in property transactions. We are not sure when a recovery will occur but when confidence is back and offices, schools, restaurants, gyms and the like are all open for business, people will want to conclude their property transactions.”
Australia’s capital cities grew by more than 300,000 people between 2018 and 2019, new Australian Bureau of Statistics figures show.
International migration was where the majority of the population increase came from in the financial year to 2019. Among the capitals, Melbourne saw the highest increase overall. The city notched up a net population increase of 113,480 – most from international migration (77,369), which was followed by the natural increase (births minus deaths – 33,859). A small proportion of the growth was generated by interstate migration (2252).
Mr Staver says Nelson Alexander currently has a contingent of vendors who are pushing forward and transacting sales.
“A number of listed properties have reverted from street auctions to virtual auctions, private sales and expression of interest campaigns, and we are getting results,” he says.
“There is a lot of data to support a V-shaped recovery. Most recently, the 2018 market was a really tough time. But we came out of that period quickly and robustly – just about every property was racing away and selling under heavy competition.
“This is another challenge but it is supported by the lowest interest rates we have ever had.”