This year marked a mild property downturn due to the coronavirus-led recession, but looking ahead 2021 is shaping up to be a positive year for property with a sharp recovery on the horizon.
Australia is now out of recession and the property market is bouncing back, particularly in Melbourne after months of lockdown. While the real estate industry is moving cautiously as the country awaits the arrival of a COVID-19 vaccine, there is a positive feeling in the air.
Now that we are (hopefully) through the worst of the pandemic, we can clearly see how the property market has been impacted over the past year. These are the winners and losers of property post-COVID recession.
The health crisis and recession created positive conditions for a number of areas.
Despite some initial predictions of 30% price declines, across most of Australia property prices didn’t fall at all during the pandemic. Where they did fall, the declines were very mild. Right now, 80% of capital city suburbs are now recording house price increases, while in Sydney 95% of suburbs are seeing price jumps. For some cities and regions, COVID-19 actually meant even better conditions.
The recession has hit youth unemployment the hardest, and given that the majority of renters are young, this led to some very challenging conditions early in the pandemic. If you were a renter that remained employed, 2020 marked the year that the pendulum shifted from being landlord-centric to tenant-centric. As employment growth starts up again, conditions are improving for renters and, by extension, for rental growth.
Perth, Canberra, SEQ and Northern NSW
Perth is in the midst of a mining boom and enormous levels of government stimulus are helping Canberra’s property market, while markets in Northern NSW and South-East Queensland are benefiting from a shift in lifestyle for many Australians. The prolonged lockdown in Victoria also seems to be a driver of activity in the property market. In all of these areas, conditions are better now than they were prior to the pandemic.
Not many of us have more than $10 million to spend on a home but it seems that enough people do to induce price growth in the prestige property market during COVID-19. This growth was largely driven by the return of high-earning expats, a lack of COVID-19 cases in Australia relative to the rest of the world and strong performance in the mining and tech sectors.
Big homes on big blocks
More people working from home during lockdowns meant that homes on big blocks with more than four bedrooms saw strong demand, which has now translated to price growth. These big homes also didn’t need to be so close to our CBDs with fewer people commuting. As a result, many outer suburban areas did well.
Iron ore prices and exports hit record pricing during the pandemic as China’s recovery began, and our main competitor for these products, Brazil, continued to suffer from high levels of COVID-19 infections. For many mining towns such as Karratha and Port Hedland, this meant strong rental and property price growth. Gold also did well, which helped with strong market conditions in places like Orange in Central NSW.
Huge amounts of government incentives, cheap finance and fewer investors in the market made 2020 the year for first-home buyers to strike. Towards the end of the year, many suburbs popular with this buyer group were starting to see drops in available properties to buy and strong price growth was occurring.
Expectedly, not all areas of property made it through the recession so easily.
Stay-at-home orders and fewer international students, particularly in Melbourne and Sydney, emptied our CBDs during the pandemic. Office, residential and retail properties all saw an increase in vacancies. Australians are now returning to the office but we still have some time before foreign students are able to come back. In 2021, there will be a strong focus from all level of governments on getting people back into the city.
There are still some restrictions in Melbourne but in most cities people are free to return to the office. The big question in 2021 is how quickly offices will return to near full capacity and whether office tenants will still need the same space they had before. The impact on vacancy levels will become more apparent as we move further into the new year.
Apartment suburbs close to universities
It wasn’t a great time to own an apartment close to a university in 2020. Vacancies increased, rents dropped and in many places, so did values. If you are a counter-cyclical buyer, you will need to move quickly to take advantage of these conditions. With several vaccines now in production, it is likely that foreign students will be returning to Australian cities in 2021 and with local students also returning to classes, better times are likely ahead.
It has been some time since we saw strong investor activity in the property market. In 2020, problems in many rental markets as well as concerns about the potential for price declines meant that investor activity remained low. Towards the end of the year, enquiry from investors on realestate.com.au began to climb, however activity still remains low in our biggest cities, Melbourne and Sydney.