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COVID-19 has led to unprecedented changes in Australia, from the closure of borders to the biggest economic downturn in nearly a century. How did this phenomenon affect the country’s property market?
In an address delivered at the Committee for Economic Development of Australia Annual Dinner, RBA governor Philip Lowe said that, through these difficult times, the underlying strengths of the Australian economy and people have been apparent.
For one, the national economy has performed better than many other nations across the world, thanks in part to the greater success in containing the virus than in most other countries.
“Australia’s public institutions have worked effectively and constructively together. Our public sector balance sheets are strong and have been used to good effect to cushion the shock,” Dr Lowe said.
“Our financial institutions have also helped people and businesses manage their mortgages and their debts. And Australians across the country have reacted sensibly and worked together to contain the virus.
“So, even though we have had our challenges and setbacks, we do have a lot to be thankful for,” the governor expressed.
Changing property market
In terms of the economy, there are five key areas where the pandemic has undoubtedly left a mark, according to Dr Lowe. Among these are the labour market, population growth, the property market, attitude to risk and economic digitalisation.
The property market, in particular, has presented a complex picture for experts as it simultaneously adjusted to a recession, lower population growth; record-low interest rates; substantial government incentives for residential construction; and lifestyle changes among residents, from the way they work to the way they shop and live.
“There are a lot of moving pieces at present and the effects are very uneven across different types of property and across the country,” Dr Lowe said.
According to him, the effects of the pandemic are most obvious in the market for retail properties in the CBDs, where vacancy rates have increased sharply to over 10.0 per cent. Rents and the capital values of these properties have both fallen.
Impact has also been felt in the CBD office market as most people choose to work from home. The national office vacancy rate has also increased sharply this year and further increases are expected.
However, Dr Lowe explained: “Even here, there is considerable variation across our cities, with the biggest increase in CBD office vacancies in Sydney and Melbourne. In contrast, the markets for industrial property have been stronger, with increased demand for warehousing and distribution facilities as people increasingly shop online.”
The residential market also proved to be a mixed picture, with Australia’s biggest cities having been more affected than others by the slowdown in population growth. They have also been more directly affected by the virus.
As a result, prices in Sydney and Melbourne have fallen over recent months while they have risen in most other cities.
In some states, markets across regional towns and cities have been stronger than those in the capital cities. For instance, where prices have fallen significantly in Sydney, they have increased in regional NSW.
“Many regional centres have been less affected by the virus and some are experiencing increased demand as people work remotely and look for property outside the big cities,” Dr Lowe highlighted.
Within the capital cities, the markets for houses and apartments are also performing quite differently, he has observed.
In most cities, especially Sydney and Melbourne, rents for apartments are falling while rents for houses are generally rising. “The apartment markets are more affected by the lower population growth and fewer foreign students and by young adults staying at home with their parents.”
There has also been an increase in demand for houses as people work from home, he highlighted.
To date, the demand from investors in residential property has been subdued, but it could change with low interest rates.
Moving forward, Dr Lowe believes that the full effects of the pandemic will take time to be evident in the property market. Thus, the 'complex' picture will stand for a considerable time across both the office market and the residential market.
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