Conveniently for Australia, we had only just begun recovering from a tough couple of years in the property market as coronavirus hit. All signs were pointing to a promising 2020, with the Triple Treat of relaxed banking regulations, cash rate decreases and political stability all expected to place upward pressure on property market activity. Since the virus descended upon us, positive sentiment diminished, but not entirely. As a result, some parts of the country have fared better than others. It is important, however, to note that these exceptional times are both unique and temporary. A few short months of strong performance is no indication of healthy market fundamentals. Many of these markets would not pass our long-term oriented research model. Some are therefore unlikely to represent viable long-term investments.
The most obvious success story of the pandemic so far has to be Canberra. $122 billion of additional government debt has been issued in the first half of the year to fund initiatives such as JobKeeper. The need to hire people to oversee, manage and administer such substantial government programs has had a positive impact on the property market of the nation’s capital. While rental vacancies in inner-city areas were plastered across our screens just a few short months ago, many of the ACT’s vacancy rates have actually tightened during the pandemic according to data from SQM Research. Canberra was also the only Australian city to record positive year-on-year and month-on-month growth in both houses and units on CoreLogic’s July home value index. This would be a welcome change for Canberra investors, many of whom have experienced stagnant and volatile prices in recent years.
A common theory among pundits is that coronavirus will reorient the world’s population from the urban environment to regional areas. This certainly flies in the face of pre-coronavirus UN forecasts, which suggest that all of the remaining global population growth will be confined to cities over the coming decades. Any shift from major cities is likely to be temporary, as the lure of economic participation, culture and the arts outdo the fading memory of coronavirus over time. Coronavirus’ limited long-term impact on urban living is provably questionable, given the ongoing success of major cities such as New York, London and Paris despite the persistent threat of terrorism and political violence over recent decades. However, it appears that regional property markets are generally doing better than cities, at least in the short term. ABS statistics indicate that median dwelling prices in the country’s five biggest capitals decreased 3.45 percent in Q1 2020. The remainder of the country’s areas dropped an average of 0.73 percent, with several of those areas actually recording positive growth.
During economic downturns, so-called “blue chip areas” will often outperform areas with higher mortgage stress. On the other hand, as the rich and famous tighten their purse strings, the number of mansions being sold can decrease which impacts wealthier areas. This time, it appears some of our wealthiest suburbs have been in for a treat. Double Bay, reported by GQ Magazine and the ATO as Australia’s highest-earning suburb, has experienced a $200,000 increase in median house price since the start of the year. In New Farm (inner-Brisbane), the median house price has surged by almost $150,000 over the same time. Toorak, the crown jewel of Melbourne, has added a cool $207,000 to its median house price. Superior performance in these suburbs is likely fueled by a combination of lower interest rates and a comparative level of job security afforded to their white-collar residents.