Three months into our new economic environment operating under the cloud of COVID-19, and we’re gaining access to more market data.
In addition, despite the Melbournian re-lockdown – which is unbelievably frustrating – the rest of the country is continuing towards a re-opening of sorts . . .hello Queensland holiday (also means Race Week at Hamilton Island is still a GO).
The big news
There has been considerable commentary this week on the home / investment loan deferrals which were offered by the banks for an initial period of six months. Figures published by APRA on 9 July 2020 show that as at the end of May the banks have deferred repayments on $266 billion in loans.
Interestingly, $192 billion is for home loans or approximately 11% of the banks’ housing portfolios. But closer analysis (by the banks) revealed the majority of borrowers aren’t in financial hardship and are taking the opportunity to build up savings.
The cliff : – )
Irrespective of the reason behind the loan deferrals, talk of an economic cliff has been amplified as the Federal Government salary support (JobKeeper and JobSeeker) is due to end in September – the same time the bulk of deferrals will be ending.
Exaggeration about the cliff has been fuelling many headline seekers, but these preachers of doom may have to find something else to worry about as the government and the banks have already begun taking steps to turn that cliff into an economic launch pad.
This is evidenced by the Australian Banking Association (ABA) announcement of 8 July, stating the major banks will be offering at least a four month extension on deferrals – only for those in real economic hardship though.
Along with the ABA, the Federal Government has hinted they will taper the end of their support, State Governments continue their roll out of ‘shovel ready’ infrastructure projects, and authorities such as the Reserve Bank continue to communicate they will do what it takes to fire up the economy. So, sad news for some but good news for most of us . .the cliff is quickly eroding – that’s if it was ever a thing in the first place.
Bargains will be plentiful?
While the ‘war on the fake cliff’ continues, there’s a creeping anticipation of property bargains on the horizon. This is particularly evident in the first time buyer community, where a growing number are waiting for September when the cliff will apparently deliver plenty of bargains.
Sadly, this group will be disappointed as not only will the cliff dissolve but the anticipated bargains just won’t materialise for many reasons.
One key influence is high buyer interest fuelled by the huge numbers of returning expats (approximately 357,000 Australians have returned home in the past six months – roughly twice the usual annual number of migrants moving into the country). Another big influence is the attractive interest rates on offer, meaning it can be much cheaper to buy as opposed to renting.
The chart below from Realestate.com.au tracks buyer activity on their site. It shows serious buyer activity is still 108.8% higher than the low experienced during the early COVID-19 lockdowns and is 33.7% higher than the same time last year.
On the bargain front, we could see a fair few units in CBD areas thrown onto the market, but these won’t be bargains for investors (because they will be lemons) no matter what price they attract. Rental yields for these properties have been trending downwards for more than three years, plus high strata fees and limited opportunity for capital growth make these purchases unattractive to investors – or at least they should be unattractive.
However, even the few (bad) bargains flowing from unit sales will be absorbed fairly quickly by home buyers who give up the search for houses but still want to be closer to the main cities. The other factor putting a floor in unit prices will be changes to migration when COVID-19 restrictions begin to lift, and this may begin sooner than expected with Hong Kongers leading the flow towards Australia.
We discussed the topic of bargains in the latest episode of Property Mythbusters along with a market review from the perspective of finance, renting and buying. You can watch the latest episode by clicking here.
But what should YOU do?
Remember, your decision about whether to buy should not be based on what’s happening in the market. Buy when you’re ready, then make good choices taking into consideration your future needs and the amount of opportunity within each property you buy.
Need more help?
Sometimes it helps to receive impartial feedback on your position. We specialise in developing tailored plans for each buyer as well as strategic purchases. Send me an email to email@example.com or call on 1300 289 289 if you would like our assistance.
Founder & Director, The Property Frontline
About the author
Debra Beck-Mewing is the Editor of the Property Portfolio Magazine and CEO of The Property Frontline. She has more than 20 years’ experience in buying property Australia-wide and has extensive experience in helping buyers use a range of strategies including renovating, granny flats, sub-division and development. Debra is a skilled property strategist, and a master in identifying tailored opportunities, homes and sourcing properties that have multiple uses. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, and participates on numerous committees including the Property Owners’ Association.
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Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.