Friday, 5th of June 2020
Winter is officially here and as we enter the colder months ahead, in arguably one of the most difficult times for the property industry (and indeed the world), we are beginning to see some emerging signs of optimism on the post COVID-19 horizon.
Talk within the industry has matured from reactive in nature to a more proactive plan centred on getting our economic back up and running. This is a result of community efforts to get behind the lock-down measures and flatten the COVID-19 health curve, as well as government support to awaken our economy out of hibernation mode.
However, there are further signs of encouragement for property investors and buyers looking to take advantage of market opportunities that are tipped in the coming months ahead.
We’ve broken down some of these below for an insight into the optimistic forecasts that lay ahead for Perth’s property management market.
WA Leading the Nation’s Rental Market
In a recent article by Smart Property Investment, April 2020 figures showed national capital city rents were 1.3% higher during the first quarter of the year and up 1% when compared year on year.
Whilst six of the capital cities experienced month-to-month growth in their April figures, when compared on a national scale, Western Australia lead other states with a rent value increase of 0.8%. This is due in part to WA’s diminishing number of properties available for lease, alongside strong market activity during a time when Australians are increasingly seeking security from their home residence.
As reported in our January article on property market predictions, 2020 had all of the hallmarks of a prosperous year of opportunity for property investors and buyers. There is no doubt that rental growth would have been significantly greater had it not been for the Coronavirus outbreak early this year.
However, there are encouraging signs that WA, in particular Perth, is leading the way in terms of a property market recovery post COVID-19 compared to some other states who are tipped to experience an oversupply of properties for lease.
In a recent REIWA article analysing WA rental market data from May 2020, REIWA's President commented on a notable shift since April by saying,
“The strong demand we have seen for rental properties continues, with a 27 per cent increase in leasing activity compared with April, and the vacancy rate dropping significantly in the last two years.”
Growing Buyer Confidence
When taking a look at the CoreLogic Home Value Index, it revealed the Perth property market experienced a 0.5% rise in house prices during March, with values up 0.9% throughout Q1 of 2020. Signs that Perth’s property market is recovering.
Whilst there is less buyer activity, there are also less listings on the market, thus creating a scenario of sellers holding onto their properties and balancing out the industry and reducing the impact to property values - evidence of growing consumer confidence.
When asked to comment on the state of the Perth property market, Tim Lawless (Head Of Research at CoreLogic) explained,
“Considering the temporary nature of this crisis, along with unprecedented levels of government stimulus, leniency from lenders for distressed borrowers and record-low interest rates, housing values are likely to be more insulated than sales activity.”
Australia’s Resilient Property Market
When digging back through the property archives, it becomes apparent that the property market has historically bounced back faster than any other industry during times of economic uncertainty.
Not only did the Australian property industry survive the nation’s recession in 1991, Perth in particular enjoyed a 27% price growth over the three years in which the recession lasted.
Further to this, all 8 capital cities across the country experienced growth in property prices during the Global Financial Crisis (GFC) between 2007 and 2009. The property market also successfully navigated the economic challenges of Black Monday in 1987, so the property industry is more resilient than you may think.
Whilst a decline in market activity and prices are inevitable during a global pandemic, these statistics should give buyers and investors quiet confidence that if the Australian property market can survive the biggest economic downturn in history, the fallout may not be as bad as once expected.
As you can see on the CoreLogic graph below, drops in share prices on the ASX don’t necessarily correlate to the property industry, with data showing that property has historically remained stable despite unfavourable market conditions. After all, every Australian needs a roof over their heads, thus confirming that property will always be considered an essential commodity, making it less susceptible to external market factors.
The HomeBuilder Stimulus Is Here
Thanks to the introduction of three stimulus packages from the government, Australia has embarked on its journey towards economic recovery with an injection of $200 billion. A welcome sign for Australians suffering through unprecedented times of unemployment, financial pressure and uncertainty (amidst health risks).
This week a fourth stimulus was announced, dubbed the HomeBuilder program which has been designed to specifically boost the housing market with $25,000 cash grants for owner occupiers to support new builds or renovations. With a $60 billion overestimate in the forecast cost of the JobKeeper support package, this new incentive is hoped to ease a predicted downturn in construction demand.
As reported in this ABC article, there are certain criteria that owner occupiers need to meet before being deemed eligible for the grants. The cash grant scheme has been designed to not only inject money into the economy for investors and buyers, but it is expected to also support to up to 400,000 tradies throughout the property industry itself.
Booming National Resources
In a recent Property Observer article entitled How will COVID-19 pandemic impact Western Australia property market, the strength of Australia’s mining sector was identified as one of the nation’s strongest allies when fighting the impact of the Coronavirus pandemic.
Valuation firm Herron Todd White (HTW) produced a recent residential report in which it highlighted the importance of the mineral and gas industries helping to reinvigorate the nation’s wealth once the dust settles. In the report they were quoted as saying,
"In Western Australia, our economy is most heavily influenced by the mineral and gas resources industry. The resources boom has been mentioned in almost every Western Australia segment of the Month in Review in recent years as it has impacted the state so significantly and will continue to do so for the foreseeable future."
In the March 2020 edition of the Resources and Energy Quarterly Report by Energy Magazine, it was revealed that Australia’s resources and energy exports are tipped to generate $299 billion over the 2019/20 period, with iron ore also projected to become the nation’s first ever commodity to top $100 billion within a single year.
By the year 2021, it is also expected that Australia will overtake China as the world’s largest exporter of gold, thus supporting the notion that Australia’s economy is in good hands.
Time Is Money
There is no denying that housing values and property transactions will feel the impacts of the Coronavirus fallout, however there is hope on the horizon. One of the biggest underlying factors that will determine the severity of the impact, is the length of time it takes the market to recovery.
This is all dependant on our ability to prevent spread within the community, with Western Australia leading the nation in terms of a speedy economic recovery. Thankfully, our huge efforts to date has meant life is beginning to return to some forms of normality already.
“The extent of any fall in housing values is impossible to fathom without first understanding the length of time this health and economic crisis persists. Arguably, the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values.”
- Tim Lawless (Head Of Research at CoreLogic).
Investors and home buyers should feel confident of the market opportunities available to them at present. Thanks to an array of government support packages, booming national resources, encouraging historical data and the fact that it’s never been cheaper to borrow money, property experts are labelling this time as a “golden era” to snap up bargains prior the impending market recovery.
If you are in this space, it is highly advisable to think long term rather than making knee jerk reactions within a highly dynamic market.
There are most definitely signs of optimism at present for investors, buyers and even renters as WA is holding up well despite a national economic slowdown. Whilst there is still a way to go yet, it is important to focus on the positive signs on the horizon to help translate hope into confidence as we continue to move onwards and upwards into the second half of the year.
Stay safe, healthy and positive!