Well, it’s August and we are now 3 weeks into a 6 week COVID-19 Stage 4 lockdown.
Let’s take a look at Melbourne to see what that means for the property market. Personally I have found the last few weeks difficult. Like most of us, the disruption to our lives is immense. Life without inspecting property, attending auctions, transacting and negotiating is something I have done since I was 18 years old. Property has always been a part of life for us rather than a job. It’s something that I am very passionate about. I have been fortunate to have been involved in some property transactions in the week before lockdown. I am still negotiating a relatively large transaction and in recent days I have been actively building my pipeline for September and the final quarter of 2020. Whilst challenging times, I have been surprised by the conversations and contact I have had with people planning to make property decisions later this year. Interestingly, approximately 60% of those conversations have been people seeking my advice on selling from downsizers, retiring baby boomers and interestingly young families who are also making lifestyle decisions and moving out of the big city. 40% of my conversations are with parents seeking my advice to help their children get into the property market, lifestyle purchases in regional locations, downsizers and investors seizing an opportunity to get into the market to benefit from the next cyclical upswing.
STAGE 4 – WHAT DOES THIS MEAN FOR PROPERTY?
- From 5th August 2020 real estate offices across metropolitan Melbourne will be required to close their doors for 6 weeks due to Victorian Stage 4 COVID-19 lockdown.
- For the next 6 weeks the rules no longer permit physical inspections of any type for any property for buyers and sellers.
- On line auctions are permitted.
- Open for inspections and on site auctions are banned.
- If you have entered into a new lease prior to the 5th August 2020 our agents are permitted to arrange the collection of keys from our office and to complete the entry condition report.
- If a tenant is vacating who has given notice on or before 5th August 2020 our agents will be permitted to complete the final inspection to facilitate the bond release.
- Final settlement inspections are permitted.
- Regional Victorian real estate offices have now moved to COVID-19 Stage 3 restrictions where private inspections are permitted as are on line auctions.
- House price median fell -1.4% for the month of July 2020.
- Median house price in Melbourne is $793,548.
- Year to date house prices are up 8.9%.
- Unit price median fell by 0.7% for the month of July 2020.
- Median unit price in Melbourne is $572,848.
- Year to date unit prices are up 8.2%.
Source: Corelogic 31/7/2020.
CLEARANCE RATES and AVMS
Clearance rates in Melbourne are shifting upward against a lower volume to 66% year to date.
With auction numbers falling to their lowest level on record and some reporting of auctions having withdrawn from auction counted as an unsuccessful result, the relevance on clearance rate statistics as a measure of the market’s performance is hardly relevant during lockdown.
The reliance of on line automated valuation models that rely on sales turnover for their accuracy must also come into question. Yes, it’s fun typing your address into a portal and getting a free appraisal but with transaction volumes at record lows the confidence score of these applications in some geographical areas can be extremely low.
- Last month I said it seemed like someone had pushed the pause button, well with COVID-19 Stage 4 lockdown restrictions in place in Victoria, someone has definitely pushed stop!
- Unless I can physically inspect a property I won’t buy it. Virtual inspections are a useful guide and innovative, but I’m not going to risk someone else’s money without looking under the bonnet.
- Zoom auctions – I’ve been to a few of these now and to be frank, I don’t like them. A large part of my armour is to watch the unsuspecting behaviour of my competition, both before and during an auction, to observe the body language, to overhear conversations about price and strategy at open for inspections and before auction. To introduce myself to the auctioneer before the auction and get an understanding how he or she will conduct the auction, to position myself front and centre to show confidence within full view of the auctioneer whilst keeping one eye on the competition. With this information and strategy I am placed in a much stronger position to buy ahead of my competition.
- I have always preferred the openness and transparency of the auction process , however, during lockdown, the game has tilted. The lack of quality property on the market, desperation from some buyers trying to get into the market has fuelled some strong outcomes for vendors at auction. Home buyers and down sizers are fuelling this demand.
- In this market, I have learned as a property buyer that private treaty negotiation is at this time the best method of achieving success and taking home the keys.
- Throwing the vendor off balance with a strong opening offer with a sprinkle on the top. Not giving your competition time to regroup, squashing emotional influence and limiting competition is a strategy that will have more chance of success now. As a property buyer, I am always trying to have greater control over the sale process. Having a degree of control gives me a greater chance of success.
- It’s a vendors market, stock shortages for good property and strong pent up demand is fuelling some very healthy results.
- In my view, these conditions will remain for the rest of 2020. If you are thinking of selling, I would prepare now to be ready for the final quarter.
- 2021 is far less certain. The banks’ mortgage freeze is expected to end in January 2021. Job Keeper is expected to have been wound back. This may cause hardship and distress causing more property to flood the market next year.
- This is unlikely to be good for property prices.
- The home office is now a key driver of property selection. Building size and accommodation has and will become the new currency.
- Regional and lifestyle property will remain in strong demand from downsizers, retiring baby boomers and young families. Early this week I went to a zoom auction on the Mornington Peninsula which saw an acre of land with a 3 year old house sell for $400,000 above my highest estimation.
- Anecdotally, I am receiving more phone calls from vendors wanting to move out of the big city to lifestyle property.
- Overall, it’s my opinion that residential property will perform well over the next 3 years and I expect it to rebound strongly due to the following:
- Pent up demand during 2020 will unleash .
- Shortage of family homes in the construction pipeline.
- Return of thousands of expatriate Australians, many of whom are looking for a home.
- Migration will become the cornerstone of the recovery.
- Interest rates to remain low for the foreseeable future.
– The return to store of value assets such as bricks and mortar, gold and high denomination currency notes.
- Despite recent reports that Melbourne trophy suburbs have fallen in value in excess of 10% in the last 4 months, I am not generally seeing this level of discount or distress yet. It is interesting that the article to which I refer mentioned the inner city suburbs with the lowest turnover of sales. These included Albert Park, Middle Park, Fitzroy, Carlton North, Mont Albert. And a few other carefully selected low turnover suburbs. Suburbs almost handpicked to statistically skew a result. Middle Park had 13 house sales recorded from 1st March to 19th August 2020. Mont Albert recorded only 9 house sales and Fitzroy only 22 house sales. When statistics are presented in this way, the confidence score is low and should not be relied upon for any meaningful analysis. Negative news does sell newspapers but be wary of some media reports about property and before buying or selling always seek independent advice.
- Job losses are rising. After Job Keeper, the effective unemployment rate is expected to rise above 10%.
- High rise apartments/off the plan sales. These were already affected by building defect/cladding issues in the press and negative valuation settlement risk. In a pandemic, they have been described as vertical cruise ships!
- The high rise sector is fuelled largely by the immigration story. At the minute, that’s not good reading.
- Student accommodation is ditto. The risk in this sector is it relies on government policy to open borders and to allow the inflow of migration.
- The future of the office sector is quite uncertain. The trend of decentralisation of offices from the CBD to key lifestyle locations like South Yarra, Richmond/Cremorne and Hawthorn will continue so that staff can live and work nearby and enjoy the cafes, restaurants and public transport that surrounds. I expect more of a trend to smaller boutique office developments. The high rise office sector is going to be interesting to watch. Without doubt, the way we work in the future has changed forever. There is a structural shift and more of us will work from home in the future.
- The outlook for retail remains weak. Vacancies have risen in the strips and will continue I would expect, as the hospitality and fashion industry take stock of the new post COVID-19 trading landscape. Alternate uses for retail to service and professional uses will continue to emerge.
If you are looking to buy or sell in today’s property market, contact Greville Pabst for advice first.