In our webinar this week, we were inundated with questions and unfortunately couldn’t get to them all while we were live – so here are the answers to the most topical questions.
Q: Ella M asked: Is now the time to be buying an investment property? We are ready to go, pre-approval in process, then all this happened. Do we wait? Will there be tenants in the market?
A: I think this is a good time to be looking for an investment property. There will be opportunities to buy well in the current climate. Buyers will be able to negotiate from a position of strength. Just be careful to select a location with the credentials for long-term growth. There will be tenants – vacancies are low around the nation and the various government stimulus packages will assist people who might otherwise struggle to pay their rent.
Q: Simon S asked: Will this situation promote longer-term demographic shifts to more people working remotely and strengthen property growth in regional areas over CBD?
A: I think that is a trend anyway and has helped to drive the boom in the past 2-3 years in Regional Victoria, particularly in towns within 1-2 hours of Melbourne, and also the Central Coast just outside Sydney. The current situation will probably enhance that trend towards people working remotely and therefore making lifestyle changes. Increasingly, there are fewer and fewer reasons to be close to the CBDs of major cities.
Q: Frieda & Anthony S asked: What’s happening with the Perth / WA market?
A: Perth has been heading into a recovery phase, with vacancy rates reduced, rents rising, sales activity increasing and prices starting to rise in some suburbs.
The virus crisis is likely to temporarily stall the recovery, but the underlying economic fundamentals have improved in WA so, once the virus situation has passed, the Perth market will resume its path to recovery. There will be good opportunities to buy well in Perth ahead of the uplift later in the year.
Frieda, you may feel Perth is “the forgotten cousin” generally but we feature it constantly on hotspotting.com.au. We see Perth as an opportunity for investors and that’s a regular part of our message. This week we have published our new updated edition of Top 5 Perth Hotspots.
Q: Shanaz A asked : Auction clearance rates will change now that the first wave of lock-down controls come into effect. Do you predict that the market will continue to be “healthy” amidst rising unemployment?
A: Yes, I think the market will continue to be healthy. The rise in unemployment will be temporary – if it was long-term, extending right throughout the year, it would have a material impact on markets and property prices, but I expect it to be relatively short-term. Auctions will be curtailed by the government restrictions on gatherings, but most sales do not occur via auction so that in itself will not be detrimental to property prices. Only 10-11% of sales across Australian happen through auctions. It will cause some vendors who particularly want auctions to withdraw their properties from sale, which will exacerbate the shortage of listings and put a floor under property values.
Q: Dom D asked: Finance Broker here, you will see impetus from pre-approved finance clients seeking to close deals as banks start to shift policy on those employed in tourism and hospitality. Non-banks have already moved in this space for new borrowers. I think there will be a rush to get a deal locked down.
A: Interesting take on the situation, Dom. Lenders have a strong vested interest in keeping mortgage business flowing and the lending space is very competitive. As you suggest, some lenders may be against certain professions but the second-tier lenders will be seeking to take business from them.
Q: Phil M asked: Rather than just focusing on buying real estate, what about selling over the next 1 to 2 years?
A: Over the next 1-2 years? I expect us to be well beyond this virus situation before well ahead of a 1-2 years scenario. But in the current climate, there will be opportunities for sellers in certain locations, because relatively few people will be listing. Before the virus crisis, there was a significant shortage of listings and that is likely to be exacerbated by the virus impacts. Those with properties for sale will have relatively little competition. Those looking to sell a year from now won’t be affected by the current scenario, which will be history by then.
Q: Glenn B asked: Do you think vacancy rates will rise in the short term with unemployment increasing?
A: I think there will be some increase in vacancy rates in the short-term, but mainly because owners who had been using AirBNB rather than permanent rental situations will now be seeking permanent tenants (because of the travel restrictions, which are killing the AirBNB market at the moment). Most markets should be able to absorb this, because vacancy rates are very low in most locations across Australia.
Q: James F asked : Can you help unpack how a potential 10% unemployment rate cannot have any impact on property prices going forward?
A: If we had a 10% jobless rate long-term in Australia, it would impact on property prices – but we won’t have that. We will have a short, sharp spike in unemployment but it won’t last long enough to cause a significant fall in house prices.
Q: Otis C asked: Do you have any perspectives on negotiating with developers during this time, especially as first home buyers.
A: Everything is negotiable at any time but in these turbulent times I suspect buyers will be able to negotiate favourable deals when buying new product from developers. It would be a good time to present yourself as a buyer at a time when many people will be standing back or sitting on the fence.
Q: Rasti V asked: What will be hotspots for someone who is cash-rich?
A: That’s a rather broad question. Australia is a big country and there are emerging hotspots across the nation. If you are seeking locations with good long-term prospects, but impacted in the short-term by the virus crisis, I would suggest locations where the economy has a reliance on tourism. I would, however, avoid Gold Coast high-rise. Beyond that, I would be thinking regional in many cases – good regional centres offer affordability, good rental yields and strong prospects for capital growth long-term, and are less likely than our major cities to be directly impacted by the virus crisis.
Q: Phil M asked: The Gold Coast has been flat for a long time, when will that turn around?
A: There has actually been some good price growth in Gold Coast markets in the past 12 months. But not in the high-rise apartment market in the iconic locations like Surfers Paradise. Because of the reliance of the Gold Coast economy on tourism and hospitality, that high-rise market will be further impacted by the current circumstances. The median price for an apartment in Surfers Paradise is the same as it was 10 years ago – and it’s not going to improve in the short-term.
Q: Vishal R asked: What about Tamworth?
A: As a general statement, I expect regional centres to be less dramatically affected by the virus crisis. The coronavirus itself is less prevalent there and, in many regional centres, tourism and hospitality is not such a prominent part of the economy – generally speaking. Tamworth specifically has been impacted recently by drought and tourism is quite a significant part of its economy, so I would expect the market there to be fairly subdued. Prices have dropped there in the past 12 months and vacancies are rising, so that market may struggle in the short-term.
Q: Shanaz A asked: Is Brisbane still a good option given tourism will be worst hit?
A: Brisbane is definitely coming into a growth period. Most of the key data measures show prices rising and there is a definite uplift in sales activity recently. The population data is strong for Brisbane and there has been a notable pickup in spending on big new infrastructure, which is a key factor. Vacancies – which were high previously – have come down significantly. The virus impact may cause a pause in the rise of the Brisbane market, which would make it a good time to buy, with confidence that there will be growth in the near future.
Q: Madhu C commented: Over the next few months if you find yourself unable to keep up with your loans, get on the front foot and call the credit provider early. This will not only relieve some pressure as you won’t be living in fear of what they might do, but it will most likely help to protect your credit file in the process. If the emotion is too close to home for you to liaise with the credit provider yourself, then engage a professional to do it for you. But check in early with your lenders.
A: I think that is sound advice. The major lenders have made it clear that they want to help their mortgage customers, as well as businesses, because they have a strong vested interest in keeping their customers healthy. Anyone who is struggling with loan repayments should contact their lenders and work out a solution with them. The major banks are indicating that they will allow people to pause their repayments for a period of time.
Q: Tamara O asked: If investors take advantage of 6 months loan interest deferral, is this likely to adversely impact credit rating or ability to refinance in the future?
Q: Ruolan L asked: Ask lender to postpone payments? Will that affect my credit rating?
A: Response from leading mortgage broker Louise Lucas: APRA has told lenders that those who take a holiday will not be penalised on their credit file with this information. However, every lender will know exactly what went on so it will be on the strength of their new position as the lenders will not be relying on old financials but new and very up to date so as long as they come back strong, it will be fine.
Q: Rob D asked: What should landlords do if a tenant advises they can’t pay their rent?
A: I don’t think it’s possible to give a generalised answer to that. It needs to be handled on a case-by-case basis. But a lot of the emphasis in the various stimulus packages is on assisting people in those situations. The benefits for people out of work have been significantly increased to try to avoid situations where people can’t pay their rent. But, for any landlords who fact that situation, work with your tenants, or your property manager, to come up with a solution – perhaps by reducing the rent for a short period.
Q: Frieda asked: The buyer’s agent panellist clearly has a personal interest in people continuing to buy. Terry, do you have any personal interests in this regard? Just looking to weigh up information from different sources. Thanks!
A: Very cynical of you, Frieda. Rich Harvey has a track record of being upfront and telling it like it is. I think he was fairly frank in his assessment of the virus impact – essentially a short, sharp downturn followed by recovery, which presents opportunities for buyers in the current climate. I broadly agree with that. My viewpoint comes from 35 years as a researcher, writer and author, with an emphasis on consumer protection. I’ve built my reputation on telling it like it is, or as I see it, without vested interests. I’ve observed, over the years, the resilience of real estate in the face of financial crises, recessions, natural disasters and a host of other calamities. This is a time for cool heads and sensible strategies, amid the various alarmist claims that are inevitably emerging.
Q: Gurpreet A asked: How is unemployment going to impact the property market?
A: Unemployment starts to become a factor when it’s really high (e.g. above 10%) and entrenched for a lengthy period. In the current situation, I expect there to be a sharp rise in jobless numbers, but it should be short-term only.
Q: Gurpreet A asked: Should we hold on to our savings and see how low the market will go?
A: That kind of strategy seldom works. It’s indicates a short-term viewpoint when real estate should be approached with long-term horizons. The other problem with that kind of approach is that it’s impossible to pinpoint the bottom of the market – the data that shows the bottom of the trough doesn’t appear until a long time after the event. A better approach is to look for good buying opportunities in areas with the credentials for long-term growth.
Q: Stephen L asked: What is your take on people losing their jobs who have a mortgage, will they lose their homes, if so how will they get a rental in such a tight rental market?
A: One of the key factors in the response from the Federal Government and the major banks is to support people who lose their jobs and have difficulty paying the mortgage. Lenders have said they will offer mortgage holidays – e.g. suspending payments for six months. The tight rental markets are being eased, to a certain extent, by investors who previously used AirBNB now putting their properties into the permanent rental pool (because the travel restrictions are killing the AirBNB market).
Q: Mark L asked: Travel restrictions have severely reduced AirBNB bookings resulting in owners putting their properties on the normal rental market. This appears to be lowering rental returns. Do you see this as a continuing trend or short term blip.
A: I would expect this to be a short-term situation. It’s entirely understandable that those who had previously used AirBNB will now be seeking permanent rentals. Markets, generally speaking, are well placed to absorb the extra rentals coming into the market, because vacancies rates are very low across Australia. All of the capital cities have vacancies below 3% and most are well below 2%. Most regional centres also have very tight rental markets.
Q: Anonymous asked : My husband is very nervous and wants me to sell our family home. What’s your advice on selling now.
A: No, please don’t do that. There is no need to panic to that degree. We are not going to see property values collapse and anyone who struggles to pay the mortgage during this crisis period should be able to arrange a suspension of their regular payments with their lender.
Q: Charles S asked: Will the government actions to restart economy be geographically located to the point that it will influence which suburbs will grow or not?
A: No, I don’t think there’s any evidence of that. There are stimulus packages not just from the Federal Government but also from each state and territory government, and also from some of the major city councils. Some stimulus to help economies recover will be quite widespread, I think.
Q: Brandon T asked: Would I be correct to assume that fore-closures or forced sales will rise and thus will present good opportunities for buyers who are ready to capitalize on them? If so, what’s the best way to find these opportunities?
A: There may be some – but I don’t expect a lot. The virus crisis will be short-term and lenders have said they will support those who struggle to pay their mortgages. In terms of the best way to find those kinds of opportunities, I’m not interested in helping people exploit those in desperate situations.
Q: Petronella D asked: Is it beneficial to take advantage of the 6 months deferred loan repayments?
A: Anyone who loses their job in this situation should approach their lender to work out an arrangement to perhaps defer payments. Lenders have said they are open to that – they have a vested interest in keeping their loan customers afloat.
Q: Margaret C asked: If making an offer to purchase a property, how lower from the asking price do you feel would be reasonable at present?
A: That’s impossible to answer because we don’t have one market or one situation in Australia. It needs to be assessed on a case-by-case basis. It would relate to the individual circumstances of the vendor, more than the broader market. In any negotiation, it’s wise to try to find out as much as you can about the other party, the vendor, and their situation.
Q: Brandon T asked: Will there be any material impact on the council approval process for DAs & CAs?
A: In a sensible world, councils will be speeding up approvals to generate economic activity and jobs. And hiring more staff to facilitate the process. I note that the Brisbane City Council has announced it is seeking to fast-track infrastructure projects worth $350 million as part of its response to the coronavirus impact.
Q: Vijay M asked: Should I reduce the rent before the tenants ask?
A: It may be a good strategy, to pre-empt any problems – perhaps offer a reduction in the rent for a short period to help get through the difficult period. It’s preferable to do that, rather than losing your tenant. I note that some landlords are doing that, according to media reports. But it needs to assessed on a case-by-case basis.
Q: Ben W asked: If I were to make an opportunistic buy, what’s to say I can rent it out in a timely manner in the current environment?
A: A sensible investor would, firstly, buy in a location where the vacancy rate is low (and most locations around the nation currently have low vacancies) and, secondly, speak to property managers in the local area about the prospects for renting the property you’re thinking of buying – before signing a contract.
Q: Thuy N asked: Would you build in this environment?
A: Yes, I would. If you’re considering building a new dwelling now, by the time the construction is completed we will be well beyond the current virus crisis.
Q: Sandeep F asked : How do you expect the investors holding 5-plus properties to ride this phase? As rents will start dropping or tenants defaulting, would bank looks at scenario and support?
A: Your question assumes rents will fall and tenants will default. The vast majority of people have not lost their jobs, nor will they. At the same time, federal and state governments have announced significant support for people in difficult situations. Benefits for people looking for work have been doubled. There will be some problems, but I don’t expect them to be particularly widespread. And, as I have said a number of times, these overall crisis will be relatively short-term.
Comments and Feedback from people watching the webinar:
Chris H: Thanks guys, great info once again, calming voices in the panicked crowd
Simon B: Thanks Rich and Terry. Very professional and positive (as far as current circumstances allow!) messages! Consistent with those we are also sharing – which is great!
Shanaz A: Thank you, panellists, for the info.
Phil M: Thank you, very informative.
Dom D: So true, media is highly responsible for creating panic. Lots of businesses are killing it at the moment.