Fall in migration due to Covid-19 border closures could pose challenge but market already showing signs downturn may be brief

The coronavirus crisis is having a devastating impact on the Australian property market, with sales down by hundreds of millions of dollars and tenants handing back the keys because they can no longer afford their rent.

Sales values have dropped 85% in Melbourne in the past eight weeks, according to figures released on Tuesday, equating to a loss of $584m compared with the same period last year. In Sydney, sales were down 79% (a loss of $454m), a data dashboard compiled by FrontierSI/UNSW showed.

Westpac gave a gloomy outlook on Tuesday when it announced a $1.6bn hit to its balance sheet from the virus as customers struggled to meet their loan repayments. It followed NAB’s worst-case prediction of a 32% fall in prices in the next two years.

The Frontier/UNSW figures, which are derived from publicly available sources such as Domain and realestate.com, chime with a similarly drastic picture in the big city rental market as coronavirus continues to wreak havoc on the economy.

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Across all capital cities rental asking prices fell 3.1% in the past week and 2.5% in the past month, according to SQM research. In Sydney rents were off 3.8% in the past week and 5.2% in the past month, while Melbourne was down 2.5% and 2.6% respectively. But they mask huge falls in the plusher areas such as Sydney’s eastern suburbs, where house rents are down 10%, and the CBD, where they are off by 17%.

The president of the Property Owners Association of NSW, John Gilmovich, said the rental market was “very challenging” in Sydney’s inner suburbs.

“In a nutshell, 10% of the rental book is vacant,” he said. “Some tenants have just bailed out. They’ve broken their leases and handed back the keys saying they just can’t pay. Others have seen their leases expire and not renewed. The under-40s especially are moving back to live with mum and dad.”

He confirmed rents had dropped at least 10%, and in some areas as much as 15%, leading to a price war between landlords desperate to fill their properties.

“The discount wars have started. Landlords are offering two weeks’ free rent, they’re offering to pay for electricity, for gas, for Foxtel, Netflix, you name it. Anything just to get someone in.”

It should be a golden time for tenants to obtain a cheap lease, but very few people are moving, with inspections often stymied by concerns about viewers coming through properties during the public health scare.

“Inquiry rates about rentals are down 80%,” Gilmovich said. “Hits are very low, very low. People just aren’t moving.”

Louis Christopher of SQM research said it was “pretty evident” that there was a recession in the housing rental market and one of the main causes was a fall in net migration thanks to the coronavirus lockdown.

The Australian Bureau of Statistics said on Tuesday 538,000 people came to live in Australia in the year to June 2019 while 298,000 went the other way, a net gain of 240,000. But the Covid-19 lockdown and border closure means that the number of immigrants will plummet, posing a clear and present danger to the housing market and broader economy.

Christopher said: “The bulk of population growth is from overseas migration and that has effectively been frozen. It’s come to a screeching halt.”

The chief economist at Commsec, Craig James, said in a note on Tuesday that he expected 240,000 fewer people would settle in Australia this year.

“Clearly fewer people living here affects consumer spending for a raft of items, impacts the job market and also has broad effects on the housing sector,” he said.

“The longer that our borders are closed, the greater the risk that Australia will experience a slower economic rebound than other countries without the same reliance on migration.”

However, there was some cause for optimism about the wider sales market. Phil Delaney, chief innovation officer at FrontierSI, pointed to analysis that showed a rise in the last week of positive sentiment about the property market. Google searches for real estate had also increased, he said, along with the improving trend in clearance rates, which could indicate that buyers and sellers in the market are ready to trade again.

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“Everything is speculation, but the Twitter sentiment index shows it is improving, especially around the release of the Covidsafe app, which people see as a sign that there is light at the end of the tunnel.”

There was also a note of optimism from Steve Jovcevski, a property analyst at Mozo.com. He agreed that prices had fallen but said it was “just the froth on the top” of the sharp rise in prices since spring and believed prices would pick up again this year, helped by the banks allowing homeowners to defer mortgage payments.

“I’m pretty positive because it could have been worse and I’m just getting more confident that we will get over it sooner rather than later. There’ll be a dip now but it will bounce back.”