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John McGrath - COVID-19 Raises Property Values And How Lockdowns Impact The Market

John McGrath - COVID-19 Raises Property Values And How Lockdowns Impact The Market

John McGrath
John McGrath
02/08/2021 | 3 MIN READ

COVID-19 has directly raised property prices across the country and the impact of lockdowns on the market is relatively small. That’s been our own experience, which is now backed by research.

 

Firstly, let’s look at home values.

Research from KPMG Economics shows COVID is directly responsible for national price spikes over the past 18 months, which we already knew but they’ve had a go at quantifying the difference.


Over the four years to December 2023, KPMG says the pandemic will deliver Australian house values a 4-12% boost and apartment values a 0%-13% boost, over and above the growth that would have occurred without the pandemic.


The report says the key elements boosting prices over the past 18 months have been cutting the cash rate to 0.1% (which reduced home loan rates); the Reserve Bank’s quantitative easing program (QE); and HomeBuilder.  


Also playing a role were saved travel budgets, income support and direct housing market support.

 

Now to lockdowns and the impact on the property market

As Sydney enters its 6th week in lockdown, the number of auctions taking place and the number of new listings coming to market are lower, however auction clearance rates are holding up well because buyer demand is still high and people are used to online auctions now.


CoreLogic data shows more homes sell prior to auction during lockdowns, and more are converted to private treaty. Many auction campaigns that haven’t yet hit the market when lockdowns commence are postponed until on site auctions and physical inspections can resume.


At McGrath, we’re finding that lockdowns delay transactions but don’t stop them. Some buyers put their search on hold due to restricted inspections and some sellers delay their campaigns. This delayed activity then plays out during the strong rebounds we see as soon as lockdowns lift.


The short, circuit-breaker style lockdowns have no consequences for home values. The longer lockdowns can result in some price softening but we’re talking -1% or less per month, if we use Melbourne’s second lockdown last year as a case study.


When lockdowns are lifted, we see a flood of new activity. The rebound is always strong. This is because the same factors motivating people to sell before lockdown, such as ultra low interest rates and lifestyle changes due to working from home, are still in play when the lockdown is over.


These trends are going to be long lasting. Working from home is a permanent structural change in our economy and it’s going to have flow-on effects in the property market for some time yet.


As a result, there is demand in the marketplace today that simply wouldn’t have been there had COVID never happened. The national sales volume in FY21 was the highest it’s been since 2004, according to CoreLogic.


While we’re on the topic of lockdowns, let’s look at the help available to home owners, small business owners, tenants and landlords in NSW and Victoria.


The most important thing to know is that banks are offering home loan and business loan repayment deferrals for up to three months. In addition, most banks are also offering broader support packages. Go to the Australian Banking Association’s customer website, where you will find information on each bank’s support package. 


In NSW, the rental moratorium is back but only for 60 days (from July 14).


Residential landlords will have to negotiate the rent with tenants who have lost 25% or more of their income due to lockdown. Landlords will be reimbursed up to a maximum $1,500 through the Residential Tenancy Support Payment or they can choose land tax relief if preferred.

 

For information on government support payments:


Click here for state government payments available to individuals and businesses in NSW

Click here for federal government payments available to individuals in NSW

Click here for state government payments available to individuals and businesses in Victoria

Click here for state government top-up payments available to businesses in Victoria

Click here for federal government payments available to individuals in Victoria



In 2022 and 2023, the KPMG Economics report predicts price growth will moderate due to overseas migrant population losses during COVID and rising home loan rates as the economy rebounds.


However, it also expects the COVID boost to home values to last.


KPMG predicts that house and apartment prices in every capital city (except apartments in Perth) will be higher over the four years to the end of 2023 than they would have been without COVID.


In the short term, expect a big market rebound in Sydney when the lockdown is over.

 

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters. 

 

This article originally appeared in The Real Estate Conversation (August 2, 2021)

 

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