Property prices don’t necessarily always fall during recessions but this time you would have to think that prices will tumble significantly, given the speed and depth of the COVID-19 economic shock.
Simon Pressley, managing director of Propertyology, says the problems in the property markets will be temporary.
Even those sober economists at the big banks are forecasting price falls of up to 32 per cent over the next couple of years – though the banks’ “base” cases, or most likely scenarios, are for price declines in the order of 10 per cent.
A lot of homeowners are ahead on their mortgage repayments and have a nice buffer in case they have to drop their payments to the required minimum, and history shows most people can hold on without becoming forced sellers.
That’s also likely to be the case this time, given the level of government support through JobKeeper and JobSeeker and lenders’ granting of repayment deferrals to their home loan customers affected by the financial fallout of the pandemic.
However, the situation is trickier for property investor landlords.
Rental vacancy rates in Sydney’s CBD hit more than 13.8 per cent during April – the highest ever recorded by property researcher SQM Research.
Vacancies at Melbourne’s Southbank are similarly at 13 per cent, and in the CBD it is 7.6 per cent.
So far, the vacancy rates in the suburbs of our two largest cities have risen only slightly, with the elevated rates contained to inner-city areas.
Still, the relatively low suburban vacancy rates may be understating the true weakness in rental market, given many tenants have negotiated rent discounts or deferrals with their landlords.
Robert Mellor, executive chairman of economic and property forecaster BIS Oxford Economics, describes the high vacancy rates of inner-city areas as “alarming”.
It is the number of people out of work, fewer international students and loss of immigration that’s driving the surge, particularly in areas with many higher-density developments.
Overseas travel bans have also led to demand for short-term accommodation through sites such as Airbnb drying up, leading property owners to list their housing for long-term leasing. That’s pushing vacancy rates in holiday hotspots higher, though that will change once interstate travel resumes.
Simon Pressley, managing director and head of market research at buyer’s agency Propertyology, says many landlords with investment properties in inner-city areas are finding it tough.
And those who bought investment properties recently risk being in negative equity if prices fall significantly, where they owe more on the property than what it is now worth, he says.
However, Pressley cautions against punching out doom and gloom predictions on a negative trend.
“I’m in the minority, but I’m not seeing double-digit price falls,” he says.
“It is a dreadful thing for some landlords but we are talking about specific pockets. It is not going to be like this forever.”
The coronavirus has at least ensured that interest rates and, therefore, borrowing costs, will stay low for years to come.
Time will tell, but the almost 2 million Australians with at least one investment property will be hoping Pressley’s optimism proves correct.
This article is republished from www.brisbanetimes.com.au under a Creative Commons license. Read the original article.