Market comment: Buyers return and the Sydney market shows signs of recoveryWed, 13 May 2020
This time last month the Coronavirus was threatening to overwhelm our health systems and our economy. It was hard to find any positive news about the property market. However, in these fast-moving times we can now see some of that hoped-for light at the end of the tunnel, although it’s going to take a while to determine what our ‘new normal’ will turn out to be.
With the easing of the COVID-19 crisis, the NSW government’s ban on on-site auctions and open homes was lifted from May 9. Social distancing rules and regulations around hand sanitising stations will still remain in place, and most auctions will only allow registered bidders to participate.
“Choosing a home is one of the biggest decisions anybody makes and easing the restrictions to ensure people can more easily inspect, buy or rent a property is an important step for NSW,” Treasurer Dominic Perrottet said.
“The real estate industry has been adaptable in transitioning to online auctions, property inspections by appointment or online, and now as we make the move back to a more normal mode of operation we must ensure safety measures such as social distancing remain a key part of the process.”
While open homes have come back into operation, social distancing could still restrict the numbers of prospects allowed through a property, but most agents say they are also ready to keep allowing potential purchasers to make private appointments. “We have one or two happier to do that than [attend] open homes,” said the Oxford Agency’s Matt Marano.
The first weekend on which on-site auctions resumed saw a flurry of activity as many agents cancelled their on-line plans and hastily moved their venue to the addresses of the properties for sale. Other agents postponed the auction dates for a couple of weeks from the online date to one that’s on-site and commenced new sales campaigns.
Having seen the number of listings fall, clearance rates slump to their lowest level in 15 years and prices drop since the changes first came in on March 25, real estate agents throughout Sydney have heralded the ease in restrictions as the start of a return to normality. Buyer interest has been strong, and discounting hasn’t been needed to make sales.
Real Estate Institute of NSW (REINSW) president Leanne Pilkington said she was thrilled with the developments and expected it would bring some confidence back to the sector: “It’s a sign things are starting to get back to a little bit of normality and we all can’t wait for that,” she said.
“This will give people optimism. Vendors were saying they wanted to sell but were waiting to see what would happen, this will give them enormous confidence to return to the market.”
Ms Pilkington said she expected open homes and on-site auctions would continue to look a little different for a while: “I don’t see us just having open homes and getting everyone to come through. The idea of still booking people in just to make sure we won’t have a glut of people will have to happen,” she said.
Domain’s senior research analyst Nicola Powell also saw things going back toward normal: “It’s quite clear that we’re seeing agents revert to the traditional on-site auction,” said “There has been a pretty swift change since the lift was announced and I think that’s going to be the way forward in the coming weeks.”
Dr Powell added that she expected Sydney auction numbers to rise in the coming weeks due to the lifting of the auction ban, but volumes would probably remain low for a while when compared to previous years.
This doesn’t mean there won’t be any on-line auctions. The Agency auctioneer Thomas McGlynn said some auctions would continue to be streamed online to help interstate or overseas buyers or for those who did not feel comfortable attending an auction.
“There are going to be owners who request differences in how things are operated, there will be some where only registered bidders are [invited to the auction] and allowed to inspect a property … in other circumstances, particularly where there is a large property that allows for appropriate social distancing, they may allow for more people to attend.”
Some interesting data from realestate.com.au released this month shows that buyer interest in the market is up an amazing 50 per cent on this time last year, despite the disruptions to the industry caused by Covid-19.
The property website’s research shows that year-on-year online buyer property searches are up 50 per cent nationally, with NSW showing growth of 39 per cent.
James MacSmith, writing in the Daily Telegraph, says that optimism is flooding back into the market: “The buyers are out there,” he says.
Frank Valentic of Advantage Property, who is both a buyer’s agent and vendor’s advocate, is equally positive. He says that home prices have been holding up well and that even in the present unsettled situation there are good opportunities for both buyers and sellers: “Family homes and the first-home buyer segments are pretty solid – there are opportunities if you’re buying,” he says. “If you’re selling, I’m telling my clients that it’s better to sell sooner rather than later.”
New research conducted before the Covid-19 pandemic hit by Rabobank, one of the world’s largest banks, had found that a record number of Australians had been planning to buy a new home. A staggering one-third of those surveyed had been considering upgrading, downsizing, shifting location or getting into the property market for the first time in what would have provided a massive boost for the economy.
Glenn Wealands, head of client experience at Rabobank, said the bank had been conducting its financial health barometer of the country for over a decade: “But in the poll we conducted in the first quarter of 2020, we found a record high number of Australians – 29 per cent – citing the intention to buy a new home in the next two years,” he said.
Wealands said no one yet knew how that position will have changed with the coronavirus crisis and many Australians losing their jobs: “But I think there’s definitely a lot of people exhibiting really good financial management leading into the pandemic and having a sizeable deposit saved so were aware of what they could afford.”
The Rabobank research points to several reassuring signs of good financial health within the pre-Covid-19 community. It found that 73 per cent of people believed they lived within their means, 66 per cent had a long-term financial plan and 62 per cent regularly reviewed their finances. Eighty per cent said they were financially comfortable – up slightly from 2019’s 79 per cent.
“With perceived demand having been at an all-time high, now is definitely a great time to take stock and review how circumstances currently are, and whether there are opportunities,” said Wealands. “It’s always important to be on the playing field and actively reviewing finances rather than a spectator just wondering when the pandemic will subside.”
Nerida Cole, managing director of Dixon Advisory, says with so many people previously ready to pounce on the market with deposits put away and research on what to buy completed, then there’s still room for them to act if their finances haven’t been derailed by coronavirus.
“The good thing now is that it is a buyers’ market and if vendors aren’t coming to the party on price, then they can walk away as there’ll be another property around the corner. A lot of people really want to sell now, whether investors wanting to get out of the market or people under financial pressure themselves, so there are good opportunities.”
Justin Doobov of Intelligent Finance told Domain’s Sue Williams that now is a good time to buy, and especially to upgrade to a more expensive property: “People have spent a lot of time in social isolation in their homes and are now realising the shortcomings of their homes, and want to move into something better,” he said.
“Now is a good time to be ready to buy because there’s going to be a lot of property coming onto the market that people need to sell as they’ve lost jobs or are under financial strain and will be ready to make discounts.”
Even though overseas buyers are hard to spot at present, enquiries online from overseas are strong. These enquiries reflect the perceived weakness of the Aussie dollar and the current softening of property prices in some parts of the country, but our international travel restrictions are set to stay in place for anywhere from a year to eighteen months and that’s preventing potential buyers from conducting in-person inspections.
Sydney Sotheby’s International managing director Michael Pallier summed it up: “In general, inquiries are up, but transactions are down. We just have to be patient and get through it,” Mr Pallier said.
Executive chairman of property listing portal Juwai, Georg Chmiel, said that while transactions are difficult in the current market, a surge in buyers is expected once travel restrictions are lifted.
“We still have strong demand from Chinese buyers for Australian property but getting them to the transaction is harder than normal at the moment,” he said, adding that Australia’s management of the coronavirus pandemic made it a more appealing place to buy.
“Australia was already near the top of the list for buyers from China, Singapore and Malaysia,” Mr Chmiel said. “Each of these countries has been challenged in its own way by the coronavirus pandemic, in ways that make Australia even more appealing.”
The virus and the property market
Covid-19 has affected virtually every aspect of Australia’s economy, naturally including property prices. For a time there were some expectations that it would take several years for prices to recover to anything like their pre-virus levels, but now that the country has shown it can effectively manage the impacts of the coronavirus, more optimistic forecasts have begun to appear.
The ANZ Bank expects dwelling prices to fall 10 per cent from peak to trough across all capital cities, with Sydney’s prices slipping 13 per cent before starting to recover, in part due to population growth being slowed by border closures.
Another of the ‘Big Four’ banks, NAB, said the expected sharp rise in unemployment could drive property prices down by 10 to 15 per cent over the next 12 to 18 months but sees prices flattening out from the middle of 2021.
PRDnationwide chief economist Diaswati Mardiasmo told the Sydney Morning Herald that she suspects as broader restrictions are eased and businesses recover there may be improvements across the board sooner than the banks’ forecasts,
"I wouldn't be surprised if we plateau [in the property market] in the very short term, say in the next month or so, as further easing of restrictions are introduced," she said, adding that normalisation is still several more months down the track.
New data from the Australian Bureau of Statistics (ABS) shows that Australian jobs have taken a 7.5 per cent hit resulting from the coronavirus shutdowns, with the highest percentage of job losses among people aged 20 years and under and those who are ‘twenty somethings’.
However, Domain economist Trent Wiltshire pointed out that the age bracket where people are most likely to buy a house – typically middle-aged Australians, had a less dramatic rate of job losses than the other cohorts.
“Yes, they’re less affected, so they’ll probably be more likely on the rebound to be more active in the housing market, but it’s a big rise in unemployment and it’s not finished yet,” Mr Wiltshire said.
St George Bank economics chief economist Besa Deda said while house prices still rose across Australian capital cities in April, she predicted the upcoming April Labour Force data – due to be released this month – would show the unemployment rate increase to 8.3 per cent from its March rate of 5.2 per cent.
“It does suggest that housing demand will weaken, and we will see falls in house prices,” Ms Deda said. But as we’ve seen in previous downturns, the annual average house price decline can be quite small.”
Stamp duty faces reform
There’s general agreement that the stamp duty on property transfers has outlived its usefulness. There’s also a lot of creative thinking going on about how it can be replaced by a more stable source of revenue for governments that won’t be as volatile as stamp duty when economic disruptions like Covid-19 occur.
We’ve been foreshadowing the replacement of stamp duty with the introduction of a broad-based land tax in these pages for some time. Now, the effects of Covid-19 on state and territory finances, as well as on the national treasury, have put it at the top of many government agendas as a better source of funds to replace those that are drying up.
Domain’s Sue Williams writes: “Stamp duty is back in the spotlight as the federal government draws up a raft of emergency plans and structural reforms to get the economy back on track after the devastation wrought by COVID-19.
“Many key figures are urging the government to abolish stamp tax as an unwieldy weight on both the property market and people’s flexibility, making homes unaffordable for first-time buyers, and creating barriers for those wanting to move closer to work, upsize or downsize.”
Former Federal Treasury secretary Ken Henry has said for many years that stamp duty creates "all sorts of economic and social distortions," including unfair expenses for aspiring homeowners and “disincentives for those seeking to downsize or move around for job opportunities.”
Dr Shane Oliver, AMP Capital chief economist, said in April: “Stamp duty is a terrible tax, it should be repealed, and this is the perfect time to do it.
“The problem with stamp duty is that it’s a massive impost on a single transaction which inhibits economic decision-making in a less-than-optimal way. But land tax would be levied on the value of land and applied to all landholders equally and be done in a much fairer way.”
Now Victoria and NSW are leading the other states in looking for ways, as one journalist put it, “to lift economic growth while overhauling a string of taxes critics argue are inefficient and complex.”
NSW treasurer Dominic Perrottet has narrowed down the list of targeted taxes by nominating stamp duty and payroll taxes – both big money makers for his state. Victoria’s treasurer, Tim Pallas has commenced working on a new tax package with reforms to the same two taxes, while the Queensland government has said it will consider reforms after the state election in October.
Tax expert and the head of the Australian National University's Tax and Transfer Policy Institute, Robert Breunig, said recently that stamp duty was an "obvious candidate" for reform. He particularly wants to ease the burden of post-virus economic recovery falling on younger Australians.
"Given the current spirit of bipartisanship evidenced in the passing of pandemic legislation and the formation of a cross-party, state and federal unity government, there is a golden moment to seize. If we can effectively reposition the tax and transfer systems, we will be able to restart the economic engines in a more sustainable manner," he said.
NSW’s Dominic Perrotet agrees with the timing of the move: “"There is no better time to rid the states of inefficient taxes that hold back economic growth and I am talking stamp duty and payroll taxes," Mr Perrottet said recently.
The chief executive director of policy for the Housing Industry Association (HIA), Kristin Brookfield, said there was a clear benefit to be gained by removing stamp duties: "We believe governments should consider ways to remove inefficient and inequitable taxes such as stamp duty and payroll tax on new home construction," she said.
Real Estate Institute of Victoria president Leah Calnan said a removal of stamp duty would encourage people to transact more frequently: “We already have 19 taxes that are payable through the property sector, which contribute [up to] 48 per cent of the state’s income.
“We’ve been speaking with the government for many years in regard to reducing stamp duty calculations, because Victoria has some of the highest rates across the country.”
Property Council of Australia chief executive Ken Morrison told the Herald-Sun that he welcomed possible government plans to scrap stamp duty, which he called “Australia’s least efficient and most unpopular tax”, but he also noted a shift to an annual tax could be complicated and costly for families.
“In modelling for the Property Council, Deloitte Access Economics estimated that the average ‘land value property’ would need to pay $2400 a year,” he said. “However, this is an Australian average. Different underlying land values would produce very different tax outcomes with many suburbs paying $5000 a year or more.”
Bits and pieces
An enterprising developer in Melbourne is offering a ‘try before you buy’ scheme that aims to help struggling home buyers get a foothold in the property market by letting them rent an apartment for five years before buying it at a fixed price.
A former CD and tape factory in the north-western suburb of Kensington is being demolished to make way for the sustainable two-bedroom apartments, which are aimed at low to middle income earners. The starting price of these apartments is around $500,000.
Developer Kris Daff has two ‘try before you buy’ projects underway. Under his plan, tenants are given access to a financial coach who helps them save a deposit for their eventual purchase. At the end of five years they can purchase their apartment at a fixed price, agreed at the time their residency commenced, although they are able to opt out of the purchase at that time if they wish.
Another story in the news recently concerns the NSW government’s handling – or not handling, of the flammable cladding issue we’ve mentioned here before. More than six months after receiving advice from the building commissioner that serious risks created by flammable cladding on buildings across Sydney required urgent attention, NSW Cabinet is still considering what should be done about mitigating these risks.
Building Commissioner David Chandler handed a plan to the government last August to deal with the flammable cladding crisis. The details of that plan have not yet been made public. Better Regulation Minister Kevin Anderson said the government was "carefully considering" the commissioner's plan but no action has yet been taken.
Some 444 high-risk buildings across NSW that need cladding partially or completely removed remain on a register compiled by a taskforce set up the government. The owners and tenants of these buildings haven been informed when concerns about cladding are found, but potential buyers or prospective tenants cannot yet find out whether a building is on the list.
'Not out of the woods yet': NSW real estate restrictions lift but prices to slump,’ Jennifer Duke, Sydney Morning Herald, 11 May 2020
‘Coronavirus: Melbourne median house value tipped to fall 9.2 per cent,’ Samantha Landy, news.com.au, 11 May 2020
‘Coronavirus has turned the property market upside down in the blink of an eye,’ Kirsten Robb and Carrington Clarke, ABC News Online, 4 May 2020
‘House prices to bottom out by mid-2021: ANZ,’ Nila Sweeney, Australian Financial Review, 7 May 2020
‘Spike in buyer interest a very positive sign for Australia’s real estate market,’ James MacSmith, Daily Telegraph, 7 May 2020
‘Job losses continue to increase, signalling a hit to house prices,’ Jemimah Clegg, Domain, 5 May 2020
‘Why now could be the right time to buy a new home, according to experts,’ Sue Williams, Domain, 5 May 2020
‘Agents rush to switch Sydney auctions from online to on-site ahead of restrictions being eased,’ Sue Williams, Domain, 4 May 2020
‘Stamp duty, payroll tax in the firing line as states prepare for reform,’ Shane Wright and Noel Towell, Sydney Morning Herald, 5 May 2020
‘Perrottet's recovery plan to axe 'inefficient' stamp duty, payroll taxes,’ Alexandra Smith and Matt Wade, Sydney Morning Herald, 2 May 2020
‘Stamp duty, Victoria: Concerns over potential replacement tax,’ Jayitri Smiles, Herald Sun, 27 April 2020
‘A terrible tax’: Is it time to abolish stamp duty?,’ Sue Williams, Domain, 27 April 2020
Melbourne housing developer offering ‘try before you buy’ scheme in Kensington,’ Lucy Mae Beers, 7NEWS, 4 May 2020
'Glacial progress': Minister under fire over flammable cladding crisis,’ Matt O'Sullivan, Sydney Morning Herald, 17 March 2020
‘Overseas property market stalls as buyers refuse to purchase until the borders open,’ Melissa Heagney, Domain, 3 May 2020
‘Real estate market gears up for return of on-site auctions following easing of bans in NSW,’
Kate Burke, Domain, 8 May 2020
‘Open homes and on-site auctions no longer banned as NSW government gets ready to lift COVID-19 restrictions,’ Ellen Lutton, Domain, 3 May 2020