There’s always an unpredictability to the property market, but COVID has made this much worse. And, while we had hoped the crisis was largely behind us, it appears that uncertainty is our new normal. This has many market watchers wondering what will happen next.
There are many factors that influence the state of the property market and COVID has impacted almost all of them. The virus slowed the economy, caused widespread job losses, and halted population growth (through migration, at least). It has also led to changes in government policy, creation of stimulus measures, and potentially even some deregulation of lending.
With so many variables, it’s easy to see why investors and homeowners alike are worried about their next move. There are many ways one could respond to the changes to the real estate market COVID has brought about. And, as arguments can be made for each, there is no clear path forward.
Is the COVID property market a buyer’s market?
Many assumed that, because consumer confidence was down, the COVID property market would be primed for buyers. This is based on the belief that there are less buyers in the market at the moment and sellers are more motivated than usual. These two factors normally combine to put downward pressure on prices.
This is unquestionably true for some sections of the market – like smaller inner-city apartments. These areas were hit hard by the shutdown of the arts, hospitality, and education sectors. As a result, there were definitely some great bargains to be found.
However, buyers have been able to capitalise on record low interest rates and a wide range of government support schemes. These have been designed to stimulate the market and increase access – particularly for first home buyers. This has led to many first-time buyers taking the plunge and created significant competition for more “entry level” properties.
Most price data also shows that the impact of COVID on the real estate market in Sydney has been fairly minimal. In fact, despite the challenges experienced over the last 12 months, overall, prices have continued to rise. According to CoreLogic, over the year, Sydney house prices have grown by just under 5% and units have grown by about 1%.
As such, while current conditions may suggest that it is a buyers’ market, this is not necessarily the case. While prices are remaining strong for now, there are always changes that effect the property market. The COVID property market’s volatility cannot be underestimated and it’s best to view any purchase as a long-term investment.
Who should be selling in the COVID property market?
While demand for properties did decrease in some areas at the height of the pandemic, so did the supply. As a result, most sellers have still been able to find a buyer. This is particularly true for quality properties in good school zones, which are actually seeing a spike in interest.
The pandemic has caused many people to reassess their priorities and goals. With more people working from home, buyers are starting to preference space over proximity to the city. This has led to an exodus to affordable ‘lifestyle locations’, like the Central Coast, in one of this century’s most significant social trends.
All this being said, many current sales are being driven by a need to reduce debt or release capital. While the economy has performed better than most expected, many people have found themselves struggling to maintain their properties. Rather than accruing more debt or, even worse, defaulting on their loan(s), some are choosing to minimise the risk.
With all this in mind, selling in the COVID property market could mean accepting a longer sale time. If you are considering this, you should be clear about your price expectations and avoid succumbing to impatience or desperation. You should also work closely with your agent to come up with a targeted sales and marketing approach.
Is it safer just to hold property in the COVID market?
Common thinking is that, in times of crisis or uncertainty, the safest move is to hold. This is based on the belief that doing nothing is best when you can’t be sure of a good return. And, even if holding leads to a loss, it’s likely to be less than if you’d made a move.
Generally speaking, choosing to hold your property is seen as a long-term play. It reflects a belief that value will increase over time and acknowledges how expensive the process of selling can be. This is particularly true if the property is your primary residence and you’ll need to find somewhere new to live.
Holding is a particularly appealing approach to investors as returns tend to be greater when viewed in the longer term. This is because, over time, the cost of buying the property will be offset by the income it produces.
Holding a property also allows the benefits of major infrastructure investments to be realised. Infrastructure is a key driver of residential property markets, with major road upgrades and rail extensions improving liveability and accessibility. This is particularly relevant to the COVID property market, with both the Federal and State Governments adopting an infrastructure-led approach to economic recovery.
However, thinking of holding as a risk-free strategy is not without its risks. Take for example if you own an investment property in Sydney then you would have seen rents decline which likely means holding the property will cost you more and your rental yield drop. In this instance you would have to trade off any potential capital gains vs the rental yield.
Also, it’s important to remember that there’s an inherent cost associated with choosing not to do anything. This will be both direct (e.g. ongoing maintenance costs) and indirect (e.g. the loss of potential returns).
Apart from Sydney and Melbourne which have high vacancy rates – other parts of Australia have a shortage of rental properties. Some locations in NSW that have very low vacancy rates include – Central Coast, Hunter Region, Byron Bay, Orange, Mudgee, Dubbo, Nowra, Port Macquarie, Coffs Harbour, Queanbeyan, Goulburn & Albury. So, the question on some investors’ minds is, can they get a better return elsewhere?
Need help with your COVID property market survival strategy?
Whether you need to sell, are considering buying, or want to discuss the COVID property market, we’re here for you. Our expert team is across the latest market trends and are always happy to share their thoughts and insights. So, if you need a little help planning your next move, contact Local Agency Co. to discuss your options.
Please note: All information provided above is general in nature. We recommend that you speak with your accountant or financial adviser about the specifics of your situation before making any major investment decisions.