House and unit prices are currently at record levels in cities across Australia after rock-bottom interest rates and government stimulus provoked a rush of buying. This has coincided with government assistances such as JobKeeper and mortgage holidays helping prevent a wave of distressed selling during the peak of the covid-19 pandemic.

The price of housing in Sydney increased by 4.8% in the three months to December 2020. During this same period of time, rents have not kept pace, rising only 1.9%. Unit prices increased slightly by 0.2% and asking unit rents dropped by 5.1%.

Unit prices in the Sydney CBD are 6.5% higher than what they were in February 2020. In the last 12 months unit rents have fallen by 20%.

These figures illustrate that buyers are inclined to pay more money for property even during a period of time when rents stagnate or fall. Property experts are also warning that prices could decrease again especially in investor-heavy neighbourhoods.

A similar trend has emerged in Melbourne, where the housing price increased by 5.3% in the three months leading up to December 2020. During this timeframe house rents remained the same. The price of units in Melbourne grew by 4.4% and unit rents decreased by 3%.

In the last 12 months, unit prices in Melbourne have remained a similar price despite the number of unit rents dropping by 27.3%.

Different trends have emerged in Brisbane and Perth where the growth of rent outpaced the sale price growth. Unit prices and unit rents kept pace with each other. However, Canberra house rents fell far behind the soaring sale prices.

As JobKeeper payments start winding down and with mortgage holidays about to end, pressure has been increased and stripped owners away from the financial cushion they used to have. It is less-risker for owner-occupiers, who have a regular wage and can make the mortgage payments. However, it may be difficult for investors and people who have negatively geared.

This is due to the fact that individuals who previously benefited from tax breaks to repay their home loans are now currently facing years of difficulty due to international students and other international renters being prevented from coming to Australia during the covid-19 pandemic.

With fewer people migrating to Australia there will continue to be a huge decrease of tenants in the market. The discontinuation of JobKeeper will also add pressure to those with usually stable employment opportunities who are able to pay the mortgage. It is hard to predict which businesses will be able to keep employees in work once JobKeeper ends.

It is highly possible that there will be a large number of zombie businesses in Australia. This means that many businesses will only be able to afford to employ individuals who are on a JobKeeper subsidy and when that disappears more people will eventually lose their jobs.

It is uncertain when international students will be able to return to the country. There will continue to be huge pressure on investors in parts of Melbourne and Sydney where international students were previously renting.

Government incentives and low interest rates pushed prices up. However, now that Australia is stuck with low levels of immigration and a falling number of rents for the foreseeable future it is anticipated that prices could come back down again.

The end of eviction moratoriums in the early part of 2021 would also put further pressure on the investor and rental markets. It is anticipated that in the coming months there will be a lot of evictions and consequently a large number of people looking for new tenancies with damaged credit ratings because they will be in debt and unable to pay rent. The price of rent could consequently be decreased even more as more rentals remain empty.

Despite this current trend in the rental and investor market, it is anticipated that it will only continue to occur until international borders are re-opened and the green light is given for international students to return to complete the rest of their studies in Australia.

When the borders re-open there will presumably be an increase in Australia’s population and as a direct consequence of this the demand for rental properties will return to how it was in a world prior to covid-19.  

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 07 36086800. 

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)

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Post Author: Craig Dangar

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