There are so many areas of variance within the Melbourne real estate market that differ within the Covid-19 environment.
The major consequence being the direct lack of transactions both within the commercial and residential sub-markets. Interestingly enough, the general media has been extremely quiet in relation to any type of commentary as to the market and so it should, in light of the lack of movement within both the sales and leasing markets.
In essence, the markets could be termed as “static”.
Forget the throw away headlines of any sale providing an above average result.
Simply, the only reason this may be the case is that there was nothing else on the market and the intending purchaser wished to acquire either for owner occupation and/or investment purposes, and was not understandably happy with a 1% return on a term deposit.
There is always a background story to any and all acquisitions in real estate, but with the norm being “let’s keep it to ourselves”. In saying that, there are few transactions obviously with the lack of stock and few parties looking to transact, creating a degree of demand.
Simply ”price” is driven by demand.
To say that we are in a good market currently is an over statement, within the writer’s mind, the market description being in a holding pattern only.
As a valuer for over thirty years, I have always been drilled to never ever base a level of value on future expectations, but if I had a crystal ball, the following considerations would probably assist me in defining the next six month period.
Please remember I am not forecasting but just reviewing information that I analyse daily and interpret to determine current levels of value.
The main areas of which I believe consideration should be discussed in light of current levels of value, are general matters that include such things as current demographic levels and changes due to Covid-19, economic variances based on these changes, in addition to many others and the general real estate markets inclusive of housing sub-market and commercial real estate as a “whole”.
The writer could ramp this blog into many areas of discussion, but the key points are as follows, and are presented to provide some consideration by the reader as to where the market may settle towards the end of 2020. Also noting that Victoria is in a State of Disaster, with descending stages to be enacted as time goes by (hopefully) being Stage 4, Stage 3, Stage 2 etc.
The Australian demographic, so far, has been blessed with relatively small numbers of mortality impact on our general population, and being in relative terms considered minimal, if one can state this. Obviously a life is a life and regardless of analytics, still presents negatively.
In making this statement though, our mortality rate is considered low in comparison to USA, Europe, Brazil, etc. being well documented by those that do forecast that overseas migration will be impacted by the pandemic, and hence Melbourne and Australia as a whole will inadvertently see changes to the current real estate markets due to this factor alone. In general terms, we will see a continuance of border closures both domestically and internationally, lower birth rates will obviously be affected due to the uncertainty factor having a direct effect on short term housing supply and type of product offered, inclusive of price point.
Infrastructure, including local community aspect dominating local demographic to live/life/work destination, with both transport linkages and the consumer working pattern to life and hence, housing changing.
In fact, to some degree it has already. Simply, home/office/work. The delivery of all business services of a retail and commercial business model and even medical has begun to change.
Little factors that have slipped past over us all, inclusive of the viability of our economic status with the Consumer Price Index (CPI), as we know, being one of Australia’s key measures of inflation. The latest CPI update shows that the inflation rate has in fact turned negative.
This having occurred for the third time since the index started in 1948. To pause here, one needs to reflect on a standard commercial lease having a review clause to a CPI increment annually.
Unemployment. The figures vary from media outlet to outlet and can change daily, but Victoria has had the biggest percentage decline in jobs in comparison to all other states within Australia.
Lastly, the general housing market. If any expert can tell me in all honesty that a recovery is imminent and will take effect before the end of calendar year, I for one will challenge that person.
You have heard this many times over, but for those parties that are reliant on job keeper and or seeker, or return to employment from being unemployed within a six month period of the Government ceasing support (September 2020 and March 2021), the general economy will see housing stress in a manner that hasn’t been evident since the 1980’s-1990’s.
At this particular point of time in the cycle, a “wait and see” mentality should be adopted in regard to any property transactions inclusive of acquisitions, disposals and rent reviews.
There are no crystal ball experts that predict market forces one way or another. All an expert can do is provide levels of value current with some reference to the next six months without making predictions.
The market of Covid-19 and pandemic has assured that the one thing we all have is uncertainty.
First Valuation Group
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