Nerida Conisbee answers your property market questions

Some areas of Australia are going to cope much better than others in a real estate downturn, says Nerida Conisbee. Discover the key factors that will make a difference.

Property expert Nerida Conisbee answers your questions.

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The COVID-19 pandemic has tipped Australia into an unprecedented economic crisis, and the

housing market hasn’t been spared when it comes to the drop in confidence.

But just how any downturn plays out is likely to be very different across the country, says property expert Nerida Conisbee.

The chief economist at the REA Group and realestate.com.au was online today to take readers’s questions.

Here’s what she had to say.

Q. We were looking at buying an investment property in 12 months’ time. Should we bring that forward now and can you recommend any areas to look at?

A. Ultimately, it depends on how comfortable you are with risk. There are challenges with rental markets at the moment and it is likely that this will lead to an uptick in sales of investment properties, particularly in high apartment development areas. You may be able to purchase a property at a significantly reduced rate. However, there may be problems finding a tenant and even if you can get a tenant, you may not be able to get a tenant that can pay market rent. The situation could be vastly different in 12 months’ time if we get COVID-19 under control quickly, versus if it continues to present challenges. Remember, some suburbs and cities will be impacted more than others. Ultimately, you have to balance all this up, take into consideration your own personal and financial situation, and of course, always do your research on the area you are wanting to buy in.

Q. In the months ahead, with the greatest recession even depression on the horizon, with massive unemployment, business closures & defaults will we see a severe drop in property prices perhaps even one zero removed from future advertised properties?

A. It is so uncertain at the moment as to how deep and long this downturn will get. In previous recessions we have seen that not everywhere is impacted in the same way. In the early 1990s recession, prices dropped significantly in Melbourne but increased significantly in south-east Queensland, particularly on the Gold Coast. In the Global Financial Crisis (GFC), prices dropped a lot in premium markets of Sydney but increased significantly in Perth (mining boom). In the most recent downturn, prices dropped in Sydney and Melbourne but roared ahead in Hobart and Geelong. For now, it does look like Canberra is holding up better than other markets. More negatively, trouble in the rental market is impacting suburbs with a high proportion of rental apartments while more positive conditions are being achieved in premium suburbs in most capital cities which are seeing relatively high demand. The areas that are likely to see the biggest drops are those that are reliant on tourism and education – these sectors are struggling at the moment.

Q. Which areas do you think will fare better when prices start to fall? I’m in Sydney, do you think big cities will retain value better than other areas or do they just have further to fall? Is the apartment market likely to be hit harder than houses?

A. It is hard to tell exactly what will happen but there does seem to be a few clear trends. Any economy heavily reliant on tourism and education is likely to be hit harder than those that have a broader economic base. Overall, Sydney is likely to be fine long term but there are some areas that will be impacted over the next six months more than others. Right now, we are seeing really tough conditions in rental markets so any suburbs that have a high proportion of rental properties are likely to see rising vacancies and subsequent drops in rents and prices. Given that most apartments in Australia are rented out, apartments will be hit harder than houses. Currently it appears that houses in more expensive suburbs are holding up better, which is likely to be because white collar employment loss has been quite minimal to date and therefore there are very few distressed sales.

Q. For a buyer, would they be better looking now or waiting until later in the year?

A. There are three things to consider. The first is where you are looking to buy. There does seem to be some markets that will see bigger price drops than others, these include any suburbs or cities that rely on tourism and education. The second is your own personal situation with regards to employment and potential loss of income. Finally, it does depend on whether you are also looking to sell – buying and selling in a depressed market may suit some people.

Q. What is the outlook across Australia? Do you think some markets will do better than others?

A. At the moment, we can see that Canberra is performing quite differently from the rest of Australia; search levels on realestate.com.au are well up and enquiry remains strong. The very high levels of government stimulus (equivalent to 16.4% of GDP) will require increases in employment across a range of government departments. It is likely that this is helping the Canberra residential market. We are yet to see particularly strong property market conditions in Perth, however, iron ore is expected to hit $100 billion in exports this year, the highest export ever recorded for Australia. Similarly, the gold price is at record highs. Iron ore and gold are Western Australia’s top two exports, which will likely result in Western Australia and ultimately Perth benefitting. In our bigger cities, there does seem to be very different conditions in expensive suburbs compared to areas where there are very high proportions of rental properties. Eastern suburbs of Sydney are seeing six times the level of activity compared with south-west Sydney. It is likely we will see significant drops in rental levels given that renters tend to be more exposed to job loss at the moment. We are also seeing a rise in rental listings as many short-term rentals are converted to long-term. More broadly, any market that is highly exposed to tourism and education will likely be more impacted than others. Eventually, the Australian economy will open up again but it will take some time for overseas tourists and students to come back given how much more severe COVID-19 appears to be in the rest of the world.

Q. We’ve been talking about downsizing and had been thinking of putting our home on the market later this year. Should we just scrap that idea for now? Or do you think there are still buyers out there?

A. Buyers started to back off in mid-March when the COVID-19 situation really hit Australia, but there are definitely buyers still looking to purchase. Interestingly, although search activity is down from its peak in February, it is still higher than the same time last year. Conditions are still very uncertain; we should have greater clarity as to what is happening by mid-year so hopefully you will be armed with all the information you need to help you make the right decision. We are also seeing very different conditions depending on where you are in Australia. It’s worth remembering that you are a potential seller looking to buy, so even if you get less for your home than what you might have received before COVID-19, you are also buying in a slower market so hopefully on balance, you won’t be too negatively impacted.

Q. Some economist are predicting price falls of up to 30 per cent in the Australian property market if the country falls into a recession. If this does eventuate can renters expect the rent they pay to fall in line with falling house prices?

A. It is highly unlikely that prices across Australia will fall by 30 per cent and it’s important to remember that prices won’t fall uniformly across the whole of Australia. Some cities and suburbs will be impacted more than others, particularly those that have very high proportions of rental housing (the rental market is very challenged at the moment), suburbs that are reliant on tourism, or cater to foreign students. Right now, it does appear that rents will drop more than property prices, but again, this will differ from suburb to suburb. There has been a rise in the number of rental properties on realestate.com.au so supply is outweighing demand. Rents are also being impacted by the six-month ban on evictions, which is putting renters in a strong negotiating position with landlords.

Q. Do you believe that people will turn from city living to rural/semi-rural living after being confined to small places? Rural living offers veggie gardens and space for future isolations?

A. I do think many people will be considering their living arrangements after living in self-isolation! I also think that with many office workers working from home, there may be less need for them to come into the office on a regular basis. This could mean greater demand for rural living.

You can see more answers in the comments below.

Originally published as Nerida Conisbee answers your property market questions