HTW Property Report - MAY 2020
What a month it’s been! There’s little in modern history that’s dominated world-wide headlines like this crisis, and it feels as if the ramifications may run long.
In Brisbane, and Queensland more generally, it’s been a rollercoaster ride. We’ve gone from out-andout fear of the medical system being overrun while the economy plummets, to a feeling that there’s a chartable course back out – all in a matter of weeks.
Like much of the country, as at the time of writing, the numbers about infections in our neck of the woods have been good. There were two days in the past week where we recorded no new cases over 24 hour periods. Just the booster everyone was looking for.
To complete the frieze of where we sit as at now, 23 April, Queensland had two new cases reported in the past 24 hours. Since the crisis began, our state has recorded 1026 total cases across 92,699 total tests completed and, sadly, six lives lost.
But we remain vigilant. Our valuers said the populace they interact with daily appears to be adhering to restrictions and social distancing on the whole.
As a business, our office in Brisbane has taken steps as well.
For valuations where a full inspection is absolutely necessary, we have no physical contact with residents. The handshake greeting is gone and has been replaced with a little wave and step backwards Queensland for social distancing. Our company’s Contactless Inspections Tool has also enabled valuations to still proceed where required.
First up – some general observations. There’s been a noticeable reduction in listings and auctions with agents confirming that vendors are postponing their sales. This is understandable as in times of uncertainty, the confidence of achieving a desired price evaporates, so if an owner can afford to sit and wait this out, they surely will.
In a practical sense, the hit to valuation figures is still to be seen. Agents are reporting to us that sale prices continue to be at pre-pandemic values, however a significant slowdown of new listings to replenish stock levels has been noticed. Lack of stock usually means firmer prices, but in this instance, what’s available might indicate a seller eager to offload their asset.
For example, throughout the north-west inner corridor (i.e. St Lucia to Ashgrove) we saw during the early stages of the pandemic a number of people pull out of contracts, but because listing numbers were dropping despite the growing lack of confidence, value held up.
As the market has progressed, sales continue to transact at fairly healthy prices because there are still a number of buyers active in the market. Among them are those committed to buy due to having recently sold, those who missed out on properties previously or those that are seeing this time as a good opportunity to purchase.
Stimulus packages such as Jobseeker and Jobkeeper are helping support households at this stage too, but reports are that this assistance has a shelf life of around six months. If restrictions and other economic limits continue for longer, then problems may arise.
One of the other major developments in the past week in Queensland was the passing of COVID-19 rental legislation.
Just prior to the Easter weekend, the state government released a framework that would have seen a substantial power shift in favour of tenants. The framework confirmed the six-month moratorium on evictions, but also appeared to provide generous break-lease terms for tenants as well as a flexible approach to withholding rental payments.
After a campaign launched and managed mostly by the REIQ to rebalance the framework, the state government changed elements of the guidelines and the new legislation passed through parliament.
Further anecdotal observations regarding rentals is that enquiry from tenants has slowed and property managers are reporting that some existing tenants (circa 15 per cent according to the property managers we’ve asked) are asking for rent reductions. At this stage, we’ve not seen substantive evidence of rents falling or vacancies increasing, but changes are fast moving so this is an area to watch closely.
Let’s have a look at how different market sectors might perform as we progress through the crisis.
For the broader Brisbane market, locations and product type heavily reliant upon investor markets are expected to experience the biggest downturn over time.
The investor market had already been slow to recover post the royal commission into banking and the current Coronavirus climate has compounded the negativity. Declining confidence, rising unemployment and general uncertainty all play their parts in this sector. That said, there’s no substantive or material evidence that investors’ markets have seen price falls as at the time of writing. In fact, while some inner city locations have seen a significant drop in sales volumes, particularly in comparison to the first quarter of 2020, there are investors active in the market although many are adopting a wait and see strategy. A few are ready to purchase if they spot value. We have noted a slight spike in the number of valuations of homes as investors get their finances in order so they can jump at relative bargains in the property or share markets.
Some agents have also reported increased interest from interstate buyers - particularly from Sydney - looking at properties via video walkthroughs and making offers without the benefit of a personal inspection. Many probably see Queensland as carrying less risk given how high prices are in the New South Wales capital.
Moving onto prestige property. Prestige price points in sought after inner-city locations have been more resilient and less impacted at this point in time. While any percentage drop in value over the long-term would translate into a substantial dollar impact, Brisbane’s prestige property is reasonably affordable in national terms. This property type usually involves good fundamentals that help shore up values in the long term
Onto First homebuyers, and there are some good opportunities at present with accessiblypriced property likely to become more available. This segment suffers during uncertainty. Taking the plunge into home ownership under current conditions might seem too risky for many first timers. In fact, most of the contracts which fell over in the early stages of the pandemic were noticeably first home buyers or investors. For those who have secured their finance and are ready to purchase, some excellent options will come their way.
So what would we buy in the current climate?
Good quality, entry-level stock in prime inner city locations still weather the storm the best.
Steer clear of properties in secondary locations or that are designed purely as investment product. If you are looking at units, larger and better quality apartments in good locations will fare better. Second-hand, large floor area, good quality stock in this market should perform better than new, small, investor style units of generic layout and finish.
Of course, if you can buy a home in a solid, near city location at around the median price point, then this would be the lowest risk option. You will probably be spoiled for choice over the coming months, so be ready to go and see if you can get some solid real estate at an enviable price.
So in overall terms, we do expect there to be further fallout with tighter listing numbers and less transitions overall in Brisbane. Logic dictates that if the economic fallout – particularly in relation to unemployment - extends for too long, a contraction in values is likely.
However, at this stage, it seems the success of stimulus initiatives, lower interest rates and the overall success in keeping COVID-19 numbers low has bolstered confidence to a reasonable degree.
Before we sign off, here are a few thoughts on the new development market in and around Brisbane.
With respect to new subdivisions and developments, it feels like the effects of the crisis are yet to be fully realised.
Estate sales offices as of two to three weeks ago were reporting a massive drop in traffic, but actual sales volumes hadn’t fallen that much – essentially, serious buyers were still around and the tyre kickers were staying away.
Developers tell us that whilst sales were down, they were continuing to tick over at a reasonable rate. The reduced sales volumes is in response to increased uncertainty over future financial security, so buyers are delaying their purchase decisions. Sale rates had been picking up year to date compared to last year until the Coronavirus hit.
Developers are yet dropping their asking prices as a consequence of reduced demand.
While there isn’t enough definitive data on buyer segments, price points or locations, our opinion is that first home buyers and investors have been more likely to wait and see compared to second and third home buyers when it comes to new estates.
We also note with some interest that demand for development sites is reportedly unchanged. This is reasonable given such decisions are based on project timeframes extending well beyond the anticipated impacts of COVID-19, though this could change quickly if the shutdown drags on or is reintroduced later.
Campaigns that commenced before COVID-19 are still going through with reasonable demand. Agents are saying there are a few more opportunistic buyers out there, thinking they can get a bargain in the current environment, though there are enough serious buyers to keep them out of contention. A number of sellers are reportedly delaying campaigns as they think this is not a good time to sell, though this is not necessarily the case for good quality sites.
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