The COVID-19 pandemic has disrupted many industries, including real estate. With inspection arrangements altered to adhere to the government’s isolation and social distancing measures, and some landlords and renters facing financial hardship, it’s understandably a stressful time for people. For property owners and investors, how the property market performs as we move to the other side of COVID-19 is top of mind.
Depending on what you read, some economists believe we could see an 11 per cent decline in property values across Australia. Some more bearish scenarios predict a 32 per cent decline in house prices. Rather than get too drawn into the media hype around the potential for a fall in house prices, it’s more empowering to understand what’s going to drive property prices in Australia over the next couple years. Below, we’ve included an overview of the key factors that may impact the rental market over the coming months and years.
Downwards pressure on rent
With short-stay platforms such as Airbnb experiencing a significant decrease in demand, many of the properties from these platforms have come onto the rental market. This is placing downward pressure on rent prices as more stock becomes available. In areas with large international student populations, vacancy rates have increased, also placing pressure on rental prices.
Conditions across capital cities
Since isolation measures escalated across Australia in March, the rental vacancy rate across Australia increased by 0.8 per cent to 2.5 per cent in April. Sydney and Melbourne fared the worst with rental listing increases of 36.2 per cent and 34.1 per cent, respectively. It’s certainly pleasing to see that Adelaide’s vacancy rate has only increased by 0.3%. Areas with large populations of retail or hospitality workers, international students and other people from overseas have been hardest hit in these cities.
Australia’s property market has been buoyed in recent years by immigration. The COVID-19 pandemic could see immigration decrease by around 300,000 people over the coming years. For cities and regions that have typically had a large migrant population, property prices and the rental market may be hardest hit in these areas.
Ultimately, no one knows where property prices will go, and what kind of policy response the government may have if we end up in a more bearish scenario. The key way to prepare for any scenario is ensuring your mortgage is suitable for your situation and can weather an economic downturn. Regardless of COVID-19 or other macro events, having this approach to your mortgage at all times will ensure you don’t need to buy into media hype around any scenario.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.