Easter holidays are now behind us, and this weekend was another test as to how strong the current property market is in Melbourne. The clearance rate was 77% from a massive 1084 auctions over the weekend. This again showed the strength and the resilience in the current market. Despite significant increases in stock levels, clearance rates remain high, close to 80%. The Sydney market continues its crazy trajectory with a clearance rate of 81% over the weekend, and there are stories of ridiculous prices being achieved over the reserve set.
Over the past few weeks, a number of people have asked for my opinion on the property market in Melbourne. It seems that everyone is interested in property now. They also seem to think that times have never been better for everyone working in the real estate market, but that ain’t quite true. Although clearance rates and sales are strong, stock is difficult to find in certain suburbs and municipalities, so demand continues to outstrip supply which is what’s driving up prices.
We are beginning to notice a couple of interesting things. The latest tenancy laws, ushered in by the Andrews government, mean more rights for tenants and far more onerous requirements for landlords to ensure their property is kept in good condition and safe for the tenants. As a result, some long-term owners are starting to exit the property market and are selling their investment properties. There doesn’t seem to be an avalanche of property yet in terms of established houses and apartment stock, but relatively new builds close to Melbourne’s CBD, Carlton, Docklands, and South Bank are a completely different story, with huge numbers on the market. Studio apartments have become the biggest casualty, with price falls of up to 40% from previous purchase prices. One needs to remember, though, that with these apartments, the lending restrictions by banks is what is keeping the prices down. Banks are not keen to lend against property which is less than 50 sqm in size like a studio and consider it a very high risk. The double whammy here for many of these vendors and landlords is that these apartments previously housed a number of foreign students, which is no longer the case now, so there is a loss of rent for at least 12 months. The general advice real estate agents are giving clients is to try and hold off selling these apartments in the CBD until things improve—until immigration and therefore rents improve.
This leads me to the next point I wanted to touch on, which is the current rentals situation. The massive numbers of properties available for rent in Melbourne’s CBD has seen rents plummeting to unprecedented levels, down 20% in parts of the CBD. I would expect this to continue over the next 6-12 months. Regional Victoria is at capacity in terms available rentals, leading to rent price increases. Anyone working in the city or looking for cheaper rent near infrastructure may have to change their preferences on property type and location.
As first-home buyers become priced out of the established property market in inner Melbourne, I believe we will begin to see these buyers turn their attention to the inner-city market, just because of affordability and comparative bang for the buck. So although I expect studio apartments to remain low for some time, I can see an improvement in the uptake of apartments in the CBD over the next 6-12 months. At the same time, though, we also expect large numbers of properties to continue to hit the market in these areas, so this may take time.
Last week the Treasurer, Josh Frydenberg, was hinting at more stimulus plans in the next budget, due May 11, to avoid any recession. This is great news. It’s good to see the federal government not taking their foot off the accelerator but instead looking at ways to grow the economy and create jobs.
In order to see economic growth and ultimately wage increases, the Treasurer is hinting at an unemployment target of sub 5%. The Reserve Bank recently released their analysis, which had set the target at 4.5%. As at March, the unemployment rate in Australia was 5.6% but this was expected to increase with the ending of JobKeeper. So what does all this mean? Well, more spending to create more jobs and paid taxes. In fact, Josh Frydenberg said that in sharp contrast to previous recessions, following this one, “We are on track for the unemployment rate to recover in around two years.”
In his speech he said, “These are unusual and uncertain times, so we remain firmly in the first phase of our economic and fiscal strategy. We first want to drive the unemployment rate down to where it was prior to the pandemic and then even lower. And we want to see that sustained.
“The last time Australia had a sustained period of unemployment below 5% was between 2006 and 2008, just prior to the GFC. This stronger than expected economic recovery means that our fiscal outlook in the 2021-22 budget will be driven off a higher economic base than expected in last year’s budget.
“This will assist us to achieve our medium-term fiscal strategy of stabilising and then reducing gross and net debt as a share of GDP over time. This again reinforces the point that the best way to repair the budget is to repair the economy.”
Provided there are no unexpected economic shocks overseas, the next two years should prove to be very strong for the Australian economy and its people in terms of jobs, wages inflation and asset growth.
Have a great week!
Linda 姬琳达珍 and Carlos Debello (LREA)
LJ Gilland Real Estate Pty Ltd
PO BOX 19
Ph: 07 3263 6085
http://www.facebook.com/ljgrealestate & Find Us on Google+
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