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Article of the week

National Rental Market Vacancy Rates Surge and Rents Fall

SQM Research
SQM Research published a media release this week outlining the status of our rental market. In the wake of coronavirus, things are looking positive for tenants. Landlords, on the other hand, are not so lucky. Read more…

News summary

Residential sector

The AFR has reported that the number of Australian property sales has plunged to their lowest since the 1991 recession. CoreLogic estimates that transactions fell 40% in April, and turnover volumes are similar to that of September 1991. (Property sales hit a 30-year low – Ingrid Fuary-Wager 08/05/20)

The AFR has also reported that new home sales are deteriorating significantly. Since the beginning of March, when the pandemic’s social restrictions were introduced, new home sales have dropped 22.8%, according to HIA’s New Home Sales report. NSW and Queensland saw the biggest drops, with 23.9% and 21.3% respectively. (New home sales drop 23pc in two months – Nila Sweeney 14/05/20)

The Age has reported that CBA expects house prices could fall by up to 32% if there is a prolonged economic slump. Whilst Commbank CEO Matt Comyn warned of the potential house price falls because of rising unemployment, he said low levels of stock would prevent a sharp drop in the short term. (House prices could fall 32 per cent under ‘prolonged’ slump: CBA – Clancy Yeates 12/05/20)

The AFR has reported that the dwindling rental market is forcing property investors to ‘jump ship’ – more than one in nine homes listed for sale over the last week was an ex-rental property. Suburbtrends.com estimates that 11% of all listed homes are unwanted rentals. It is suspected that rising vacancies and falling rental incomes are forcing investors to bail out of the market. (Investors jump ship as renters leave – Nila Sweeney 13/05/20)

The Urban Developer outlines housing projections by NAB economists in ‘House Price Falls 10 to 15pc: NAB’.

On-site auctions officially reopened this week in NSW, the ACT and the NT, with other states to follow in the coming weeks. The Australian reported that the number of homes sold under the hammer has grown to about 64 per cent nationally — the highest preliminary result since late March. Victoria is currently the only state with on-site bans still in place, forcing online auctions to continue. (Coronavirus: confidence grows as hammer rises above virus cloud – Mackenzie Scott 10/05/20)

The Real Estate Conversation explains the extent of the lifted bans: Roadmap back to onsite auctions and open houses across Australia.

OTHER KEY HEADLINES

Singapore expats ask for rent cuts as employers tighten belts – AFR 08/05/20
'Not out of the woods yet': NSW real estate restrictions lift but prices to slump – The Age 11/05/20
Renters win as owners face short-stay apocalypse – The Age 12/05/20
Home buyer slump puts pressure on Stockland – The Age 13/05/20
Frasers warns on settlement risk – AFR 13/05/20
Stockland, Frasers say housing inquiry levels have recovered – The Australian 13/05/20
Home Sales Fall as 600,000 Jobs Lost – Urban Developer 14/05/20

Commercial sector

The AFR reported that foreign investment in commercial real estate almost doubled in the 2019 financial year to reach $73bn. The Foreign Investment Review Board’s annual report revealed that the US was the largest investor by country, followed by Canada, Singapore, Japan and China. UBS’s head of real estate believes that the Australian currency drove the increase in transactions in FY19. (Foreign investment in commercial real estate soars – Ingrid Fuary Wagner 11/05/20)

Retail

The Australian has reported that Premier Investments’ Chairman Solomon Lew believes the retail outlook will change forever following coronavirus, and many retailers will never reopen. Whilst Premier Investments is beginning to reopen many of its stores, Lew believes others will not be so lucky if landlords fail to offer fair and reasonable rent deals. These will need to reflect the poor economic conditions, otherwise the pace of an economic recovery would be further impacted and will force unemployment higher. (Premier’s Solomon Lew: some stores will never reopen – Eli Greenblat 12/05/20)

Offices

The Australian reported that companies are moving towards downsizing their offices in the wake of coronavirus, as staff have been laid off and city CBDs are avoided. Newer, but less expensive and heavily incentivised office blocks are attracting companies who are nearing the end of their leases. EY, for example, has considered shifting to smaller CBD headquarters serving as a hub for clients, and converting to smaller offices acting as more of a ‘satellite’ network. (Business push to downsize post-pandemic – Ben Wilmot 15/05/20)

The New York Times raises these issues in the context of NYC: Manhattan Faces a Reckoning if Working From Home Becomes the Norm.

OTHER KEY HEADLINES

COVID-19 crisis a game-changer for retail: Shaun Bonett – The Australian 11/05/20
Billionaire Gandel blasts Lew's retail rent plan – AFR 14/05/20
New FIRB rules could derail leasing deals – AFR 14/05/20
Plastic wrap, empty lifts, no coffee: the office after COVID-19 – AFR 12/05/20
Sydney city vacancies hit record high – AFR 12/05/20
Law firms in no rush to get back to offices – AFR 14/05/20

Construction & development

The Australian has reported that HIA expects to see a 50% contraction in new home starts for the remainder of 2020 if our international borders remain closed. Without an influx of migration, particularly international students, construction projects could dry up over the next year and hundreds of thousands of jobs could be lost. Extended slowdowns of population growth into next year could also harm commercial project pipelines. (Coronavirus: Housing and construction ‘are doomed without migrants’ – Richard Ferguson 14/05/20)

The AFR reported that builders and subcontractors are also struggling amid the economic and construction downturn – many are being forced to slash their rates. With such little work being offered, competition for jobs is high. Companies are being forced to drop their prices to compete. (Builders and subcontractors slash rates as contracts dry up – Nila Sweeney 13/05/20)

The AFR also reported that JLL’s Apartment Market Reports show construction of apartments in inner-city regions falling 5%. The combination of economic slowdown in the wake of the coronavirus pandemic and minimal migration could force apartment completions down 37% this year. In the long-term, the apartment market is expected to reach undersupply with dismal completion numbers. However, undersupply is now not expected to occur until 2022. (Pandemic to push back housing undersupply – Michael Bleby 13/05/20)

The Urban Developer analyses the apartment market in ‘Inner-City Apartment Completions to Contract Until 2021’.

OTHER KEY HEADLINES

CSR braces for slide in construction – AFR 12/05/20
Coronavirus crisis puts GPT projects on ice – AFR 13/05/20
E-commerce bolsters demand for industrial space – AFR 13/05/20

Debuilt Property provides development management & financing services to developers and property owners. Visit our Developers.Owners page to find out more about our services.

Finance sector

Lending

The Australian has reported that the number of Australians behind on their mortgage repayments increased in March. According to S&P Global Ratings, this is the result of financial stress from the coronavirus-triggered downturn. Grim employment figures indicate that the current non-conforming home loan arrears are likely to rise. The statistic currently sits at 4.38%. (Mortgage arrears on the rise: S&P – Max Maddison 13/05/20)

The Age has reported that in order to reduce mortgage risks, Westpac has tightened borrowing capacity to self-employed individuals and those who live in areas dependent on tourism. The bank announced that self-employed borrowers would only be allowed a maximum loan-to-valuation (LVR) ration of 80%. This has previously been 95% for owner-occupiers. An LVR limit of 70% will also be applied to those living in tourism-reliant areas, particularly Queenslanders. (Westpac tightens credit for self-employed amid COVID-19 risks – Clancy Yeates 12/05/20)

In more positive news, the AFR reported that Australia’s mortgage trust sector has sailed through economic turmoil unscathed so far. Whilst the sector was one of the hardest hit during the GFC, the negative economic effects of coronavirus have not as yet had a material effect on performance. (Mortgage trusts hold up amid virus crisis – Nick Lenaghan 14/05/20)

Economy

The RBA expects that the combination of an 8% contraction up to June and a 2% drop in the March quarter, will result in a 10% decline in GDP from peak to trough. It forecasts that the economy should then recover enough to be end down by 6% by December. (The AFR - RBA: 10pc contraction by June, then fast recovery likely – Matthew Cranston 08/05/20)

The Age reported that almost 600,000 people lost their jobs in April, according to ABS statistics, accounting to the single largest fall in employment over one month. If the proportion of people working reduced hours is taken into account, the under-employment rate has hit an all-time high of 19.9%. The ABS estimate 2.7 million people either lost their job or had their hours cut for economic reasons throughout April. (Australians told to prepare for worse as job numbers crash – Shane Wright 14/05/20)

OTHER KEY HEADLINES

Less migration, job losses to weigh on Melbourne property market for 12 months – The Age 10/05/20

Design and architecture

ME Dubai hotel, the Opus

Zaha Hadid Architects
This spectacular hotel is the only hotel which Zaha Hadid designed both the architecture and the interiors. Read more on Architizer…

Learn more about Debuilt Property www.debuilt.com.au
Paul pabrahams@debuilt.com.au or Daniel dburger@debuilt.com.au

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