On-site Auction Bans Lifted in NSW and Updates On The Australian Property Market

Public On-site Auctions

The lifts on public and on-site auction bans are now in effect, and NSW’s government has decided to allow public auctions to go ahead from this coming weekend with Queensland to follow shortly. Initial figures from CoreLogic showed that 60% of 590 capital city homes were sold via online auctions this week, indicating a rise of 19 percentage points from last week’s 41.1%, with Sydney and Melbourne having a recorded 63% clearance rate. However, Domain recorded a lower clearance rate percentage, with Sydney at 50% and just a third of Melbourne homes selling. The Real Estate Institute of Queensland CEO Antonia Mercorella said the Queensland government had already started relaxing some restrictions and the return of on-site auctions gives the sellers hope it may boost the property market. From May 1st, up to six people including the real estate agent can attend an open home inspection, although boardroom and public open homes were still banned. The Western Australian government has also started relaxing some measures around open inspection, announcing last Sunday that up to 10 people at a time would be allowed to attend open homes (AFR, 2020).

The Australian Property Market

The shutdowns from the coronavirus and associated businesses have caused a downturn in the property market. Currently, the economy has experienced a rise in unemployment and a fall in wages, with an expectation of further deterioration. Other short-term rental accommodation businesses such as Airbnb have already been facing challenges due to the pandemic and many now are attempting to find longer-tern tenants. At the same time, many temporary visa holders are leaving Australia due to unemployment. Property vendors are facing a tough market, with discount property listings increasing in Sydney, from 5.7% to 13.1%, and Melbourne, from 2.8% to 10.7%. NAB’s chief economist Alan Oster believes that by the middle of the year unemployment will be higher than 10% and property prices will fall by 15%-30% (ABC 2020).

Removal Of Mortgage Loan-to-value Ratio (LVR) Restrictions

In October 2013, LVR restrictions were imposed as a counter-cyclical macro-prudential financial stability tool. As a part of the mortgage deferral scheme, May 1st, the Reserve Bank are removing mortgage loan-to-value ratio (LVR) restrictions for 12 months, in order to lessen the impact on borrowers or lenders during the COVID-19 pandemic. This idea was decided after more than 70 submission from member of the public and industry responses on the proposal to remove LVR restrictions. Those who supported the response were locally incorporated banks because it allows them to support affected customers. Those against the policy were apprehensive due to the impact on the economy and the potential to cause financial instability. Mr.Bascand is not fearful of banks lending to high risk borrowers but is more fearful of banks becoming overly cautious. The Regulatory Impact Assessment shows that removing the restriction is a method of improving the flow of credit in the economy. At the same time, the action avoids any uncertainty around the implications of LVR limitations.

What Does The Record Low Interest Rates Mean for Us?

Government Policies

Interest rates are at a record low of 0.25% and the central bank has injected a huge amount of cash, approximately $35 billion of government bonds, into the Australian economy in order to ease job loss burdens (Hall, 2020). Morrison announced rent relief packages, legally requiring commercial landlords to reduce a proportion of the lease/rental agreement depending on businesses who meet the requirements. However, it is uncertain what will happen with residential tenancies - while tenants are still expected to pay their full rent there has been an ‘eviction ban’ for those who have lost their income/job from the coronavirus pandemic (ABC, 2020).

Industry

Banks are postponing mortgage payments during the Coronavirus pandemic. The Big Four (Commonwealth, Westpac, NAB and ANZ) are all allowing deferred loan payments but also announced interest capitalisation (ABC, 2020). As a result of the pandemic, there could be a positive shift towards suburban living, with people moving to areas less densely populated. Mr Ciemitis mentions that although people enjoy the ease of service/product availability in urban life from the pandemic, people who are stuck in apartments could begin to desire areas that emphasise parks and outdoor recreation (ABC, 2020). Property prices could fall as low as 30% especially in cities like Sydney and Melbourne, depending on the developments of the COVID-19 restrictions. If the ban on auctions and open houses are lifted by the end of April then the housing market could easily bounce back, however if it continues until the end of June the fall in the housing market may not recover till December (Brewster, 2020).

Adapting to Online Services

Vast Capital is not the only company to start adapting towards a digital process for consumers. We continue to provide a seamless mortgage solution, now attainable through our free 1:1 online loan enquiry service which can be booked directly on the Vast Capital Website. This is the solution to getting mortgage solutions from anywhere, even from home. The surging popularity of teleconferencing services such as Zoom and Skype for work and projects has opened new channels for companies to interact with consumers, for example restaurants and grocery shops primarily use food delivery services such as Uber Eats and Deliveroo to maintain their businesses. All these developments will likely cause a significant shift in consumer behaviour and further growth/demand for videoconferencing. Online channels will become the norm and will supplement the traditional channels to deliver products and services. After the pandemic the economy will return towards the original equilibrium, but a growing number of businesses will adapt an omni-channel approach to goods and services distribution (ABC, 2020).