At the beginning of 2020, not long out of a downturn, Sydney’s existing housing market had been in the early stages of recovery. However, the rapid outbreak of COVID-19 in Australia in March, and consequent staged Federal shutdowns to curb the outbreak, has shrouded the outlook for Sydney’s housing market in uncertainty.
Given the unprecedented nature of the crisis, it is difficult to assess with certainty the severity and length of its impact on the economy, labour market and consequently housing demand. Nevertheless, the short-term impacts of the crisis are increasingly becoming apparent. Demand for housing in Sydney has undoubtedly already declined, which is reflected in auction clearance rates falling from around 75% in February and early-March to be around 40% over recent weekends.
Lending data also suggests fewer households are prepared to commit to a significant loan amidst rising unemployment. There is already evidence of falling rental asking prices, but the impact on capital values is currently more ambiguous and will be very dependent on the length of the crisis and how soon the unemployment rate returns to pre-crisis levels.
In the medium-term, the range of possible outcomes is still wide. While there has been no immediate impact on completions in 1Q20, the crisis has caused disruptions to the supply chain, which may delay some projects in the in coming quarters. Further, developers will launch few, if any, new projects until sentiment and pre-sales improve and many proposed projects are likely to be abandoned.
As such, this crisis will further prolong the downturn in Sydney’s dwelling construction. Nevertheless, travel restrictions, coupled with higher local unemployment, will very likely slow population growth and housing demand over the next few years. The medium-term implications (when rental abatements and landlord assistance are no longer in effect) on the rental market are more ambiguous. The withdrawal of buyers from the market may boost rental demand and put further pressure on vacancy, at a time when new supply in Sydney is falling. As such, at the tail end of the crisis, the rental market may emerge as a tight one.
In the long-term, the experience of shifting life online will inevitably reshape how the market operates after the crisis. The era of self-isolation will highlight challenges of working remotely, particularly in the real estate sector where certain activities typically require physical interaction, including auctions, inspections and valuations. Firms and agents have already been working on alternatives, which are currently being tested. Some activities have switched to a virtual interface with relative ease.
When the Federal government announced a ban on auctions in March, many agents were quick to go online the following weekend in an attempt at maintaining sales. Virtual valuation inspections are also rapidly emerging as an alternative to physical property inspections, helping valuers to carry on working with clients remotely.
The short-term outlook for Sydney housing is now highly uncertain and all market participants can really do is prepare for the worst and hope for the best. However, they should also keep one eye firmly on how this crisis may change the housing market’s operations and dynamics in order to capitalise on opportunities on the other side.
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