Well it’s only been a month but what a difference a week makes! We have seen a lot of change in May! The severity of COVID-19’s impact on residential property has been grossly exaggerated. Let’s look at the key changes in Melbourne…
- House price median fell by 1.1%
- Median house price is $809,274
- Year to date house prices are up 12.2%
- Unit price median fell by 0.6 %
- Median unit price is $580,009
- Year to date unit prices are up 10.6%
Clearance rates in Melbourne are shifting higher to 64%. This time last year clearance rates were 68%.
Sales transactions remain at a 30 year low in Melbourne. The top end of the Melbourne Market has been the hardest hit with houses selling in the top 25% quartile falling by 2.2% for May.
First home buyers are the most active representing 32.6% of all transactions.
Investors remain subdued representing just 26.7% of all transactions.
Investors represented over 40% of the market just 5 years ago
- In recent weeks the clearance rates in Melbourne’s inner south have been 93%, inner east 87%, In contract clearance rates in the west habe been 52.9%. Clearly if looking at clearance rates they can be very misleading if not analysed properly.
- In May/June restrictions have been relaxed with bans on auctions lifted and 20 people now allowed to attend auctions and open for inspections. Confidence is starting to return.
- The rental market is softer, with increased rental stock available in the city due to excess student accommodation, children returning home to live with their parents and the influx of short term holiday rentals onto the market from AIRBNB being converted to permanent long term rentals.
- Compared to China, Hong Kong, UK and the United States, Australia’s management of COVID-19 and the response has been world leading making Australia a very attractive destination for property once the dust settles. Economically , Australia will recover far quicker than Europe and the United States. With the low Australian dollar I have already witnessed the return of Chinese buyers to the market over the last 6 weeks and expatriates are also re-entering our property market.
- The real market has all been about off market and sale by private treaty. The volume of property going to auction has fallen from approximately 30% of all sales to around 10% in my estimation. Auction numbers will start to increase in the coming weeks as consumer confidence returns. Desirable properties are selling well. Secondary properties are being discounted and taking longer to sell.
HOME BUILDER SCHEME
The key elements are a $25,000 grant to build a new home. The value of the completed house must be less than $750,000. This will mean that the stimulus will be confined to greenfield sites in Melbourne’s outer urban fringe and regional areas.
It will have limited affect for the majority who reside in the inner and middle suburbs of Melbourne.
If renovating between $150,000 and $750,000 you will also be eligible for the grant providing the pre reno value does not exceed $1,500,000.
We are still waiting for the Victorian Government’s assistance package that is rumoured to include the removal of Victorian Stamp duties from property transactions and be replaced with an annual land tax. The question remains if you have already paid stamp duty on a property, why should you pay the land tax as well? i.e. a double tax. We shall have to wait for the detail.
- One economist has stated that immigration has collapsed so there is a risk of the oversupply of housing. In my opinion the reduced immigration has been countered by the slowdown of new construction. The housing supply equation has a time lag and the current undersupply of accommodation cannot be fixed quickly. International borders and foreign students will return sooner than expected and when they do Australia will become more popular as a destination than ever.
- Softness in the prestige market over $3m. This market remains aligned to company performance, business profitability, dividends and bonus payments which is expected to be lower over the next 12 months. The lending market is more restrictive for properties offered for security with values in excess of $3m.
- Student accommodation. This sector remains a key risk and is dependant upon Government policy, open borders and immigration . Great uncertainty presents for this sector.
- Holiday Homes – Discretionary income has been paired back and in the short term will adversely affect the holiday property market.