The coronavirus pandemic is having a catastrophic effect on Australia’s economy. While it’s still too soon to tell what damage has extended to the property market, it will unlikely come out unscathed.
Inspections of occupied homes banned in Victoria
In a shock announcement from Victoria’s Consumer Affairs late on Thursday evening, private inspections of properties that still have people living in them have been banned.
These extreme measures are now out of step with the rest of Australia, including the directive from Prime Minister Scott Morrison, which allowed agents to continue booking private inspections with prospective buyers and tenants. It is likely this ban will have a profound impact on Victoria’s economy, real estate industry and general community, as most Australians are unlikely to buy or rent properties sight unseen.
As the industry awaits further clarification on these changes, REIV president Leah Calnan said, “the real estate industry contributes close to 50 per cent of the state’s income, via means including stamp duty and land tax. To be advised at 5pm the day before Good Friday that agents can no longer conduct inspections on occupied properties is disgraceful.”
Online auctions make up a third of previous auction market
The number of scheduled online auctions are far fewer than what we’d normally see scheduled on realestate.com.au for on-site auctions. The industry is still transitioning to new ways of selling amid COVID-19, so we might see a bigger uptake of online auctions as it becomes the new norm.
It’s important to remember that only 14 per cent of properties go to auction, so auctions really are only a small proportion of the market. Last weekend, online auctions made up 5.8 per cent of the overall market.
While clearance rates were used as the main form of auction data pre-coronavirus, clearance rates are really only a good indicator of performance in premium Sydney and Melbourne suburbs, where the majority of auctions take place. Right now, the clearance rate is a redundant indicator partly because so few properties are now going to auction, but also because we’re still in a transition phase and learning how best to sell property via auctions in a fundamentally different way.
As with all disruption, it takes time for new behaviours to replace old behaviours. At this stage, it’s too early to tell what the eventual uptake of online buying and selling will be. Post pandemic, I do think on-site auctions will come back, but no doubt the industry will have evolved.
How COVID-19 is affecting property around the world
It is still too early to know what will happen to pricing in Australia as a result of COVID-19 and we likely won’t be able to analyse data in a meaningful way until May. Until then, we can look at the worst-case health scenarios playing out in Northern Italy, New York, the UK and China to understand what is happening to property in severe lockdowns.
Markets around the world that went into COVID-19 strong are faring better, and Australia’s property market was well into recovery in the first quarter of 2020, which is a positive sign.
It’s also important to note that Australia is currently in a very different situation with much lower rates of death and infection, and a far less severe lockdown. Although, recent changes to inspections in Victoria will immediately and significantly impact the local economy, property industry and general community.
The New York property market started the year particularly strong. In the first quarter of 2020, the number of sales were up 13.5% compared to the same time last year, although the median sale price was down 1.2%.
The shutdown in New York came relatively late and high levels of activity continued until about in mid-March. New York now has a strict lockdown in place, which means that real estate agents can’t work, and it is not possible to do an in person showing of a property.
Last week, only two properties sold at the luxury end of the market in New York (US$4m+), dropping to the lowest level since the Global Financial Crisis.
The property market in Northern Italy was also set for a solid first quarter. On 22 February, parts of Lombardy were shut down. By 8 March, it had been extended to all of Northern Italy. Like New York, there is still very little data out there as to what the impact has been.
In Milan, homes for sale dropped 12 per cent in the first two months of the year compared to the same time last year. However, given the full impact of the shutdown wouldn’t have happened in this time period, it may have also been driven by a general slowing of the market.
For March, there is still very little data, although Italian real estate research house, Scenari Immobiliari, claims there has been no impact on pricing and rents in Milan have actually risen.
In the UK, a recommendation on 22 March ordered that people do not move house. Available data on what is happening has been easier to come by and the number of new homes listed is only down one per cent, despite the restrictions.
There have been no mass withdrawals of homes, but transactions are far fewer and are now down 70 per cent. Although, it is surprising there are any given the severity of restrictions.
There is a lot of data coming out on the impact of COVID-19 in China, where the country was in virtual lockdown from the end of January.
New housing starts fell 45 per cent due to quarantined construction workers over January and February, while property market investment fell 16.3 per cent.
House sales fell 40 per cent, but surprisingly, property values rose 5.8 per cent in February, only slightly down from January at 6.3 per cent.