The property market has been impacted by a multitude of dynamic forces since the pandemic commenced. The subsequent knock-on effects are wide ranging and unexpected in many instances.
In this special report, we highlight the 11 most discernible trends in the 2021 Melbourne property market that have come about as side effects of the pandemic and the ongoing response to it. As you read through the report, you may find some of the points contradict. Given property markets vary from suburb to suburb and region to region, some of the trends are location based.
Interestingly not all the initial market responses and trends to COVID-19 in 2020 are still as relevant in 2021. For example, the rate of people leaving Melbourne has slowed since workplaces and offices begun to reopen. The most dominant trends as we see it in the winter 2021 market are as follows:
1) Landlords selling out – as rents fell (and stay flat) in Melbourne, landlords are cashing out. Given house prices have hit record highs and selling conditions are near perfect, landlords are opting to sell for a high sales price rather than accept a low rental return. The overwhelming majority of houses that sell are being purchased by owner occupiers. Whilst prospective tenants are finding tremendous value in apartments, the same value is not available in housing stock as the market supply has and looks set to tighten further.
2) Baby boomers on the move – the pandemic was the trigger for many to rearrange their affairs. Now that house prices have exploded in 2021, baby boomers are increasingly selling up in favour of single levels homes, luxury apartments and/or coastal living. Any aspirational purchaser faces a torrid time if they find themselves bidding against a boomer whom is downsizing.
3) Off market sales diminish in appeal – given the current market conditions, many vendors are rightly opting to run full sales campaigns. To sell discretely off market when the market has been rising at the fastest rate in 30 odd years can be an expensive mistake. There will be isolated circumstances when selling off market is the best path.
In the main though, exposing yourself to the full brunt of the boom is advisable.
Asking an agent ‘can you sell our property off market?’ should be replaced by ‘should we sell our property off market?’
When you see sales campaigns where the selling price astounds the vendors, the agents and the neighbours, why would you risk selling to the best of a few qualified buyers off market? The open market is your best friend.
4) Landlords want rent increases – the Melbourne rental market was decimated during the initial COVID-19 lockdown as international students left the country and the borders were locked. Landlords lost tenants and income due to the unfolding drama in autumn and winter 2020.
Many landlords who lost their tenants had to reduce the rent by 15% and sometimes up to 25%, to secure a replacement tenant. As those COVID-19 impacted leases come up for their 12-month renewal in winter 2021 and with it new legislative changes surrounding electrical and gas safety checks as well as minimum rental standards, many landlords are understandably looking for rental increases. The reduced income has severely impacted many landlords’ cash flow and lifestyle. Landlords are not necessarily expecting or asking for the rental amounts to return to their pre-COVID levels. Minimising the loss would probably be the most accurate description of their mindset.
If and when international students are able to re-enter the country in a meaningful manner, the rental market could enjoy explosive growth. Whether landlords succeed in achieving meaningful rent increases in 2021 remains to be seen. Tenants still enjoy many options, particularly in the apartment sector.
5) Townhouses are the goldilocks solution – whilst house prices are hot and high-rise apartment prices have been cold, townhouses have been the steady performer in the past 12 months. Many families who are priced out of housing in their desired locale, yet don’t want apartment living are finding townhouses a happy solution. Townhouses offer the amenities of housing, sometimes even more, without the same price tag. Townhouses tend to have more outdoor space & independence, less communal facilities and lower strata levies than apartments.
6) Subtle signs the boom is levelling out – after a phenomenal first half to 2021, buyer fatigue is emerging in the market. Buyer enquiry per property and inspection numbers have softened when compared with the first quarter. From a historical perspective the numbers are still very strong though. Many properties are still achieving well above expectations, but there is also increasing signs of a market that is now consolidating rather than aggressively rising. Given the explosive growth in the first 5 months of 2021, any pause in the frenzy is to be expected and probably healthy.
7) Stock levels are actually up in many markets – yet buyers may report the opposite. A symptom of a boom is reduced ‘days on market’.
The rapid turnover gives the illusion of low stock levels. Yet when one looks at sales volumes, they are up ‘Year on Year’. So, if sales levels are up, then stock levels must be too.
The strong prices being achieved throughout the year has enticed more discretionary vendors into the market. Buyers need to react quickly and decisively when they spot the right opportunity to avoid disappointment.
Given the time, effort and stress of house hunting, whilst one holds down a fulltime job and keeps their household functioning, it is a clear illustration of why buyer’s agents have risen in popularity.
8) Underquoting is still endemic – being outbid above the vendor’s reserve does not mean you are a victim of underquoting. Accepting and believing the agent’s price guide, attending an auction on that basis and then maxing out your budget before the auction has even hit the vendor’s reserve price does mean you are a victim of underquoting.
The underquoting laws and requirement to provide a Statement of Information with every advertised property have done their best to make the agent accountable. But once a system has been put in place though, it’s only a matter of time before the system is exploited which is what has happened with the underquoting laws introduced. Agents are able to reference sales from 6 months ago, pre-boom times, to support their underquoting.
Once the market eventually slows and/or falls in a meaningful manner, agents will have vendors who want a boom time price in a market that is correcting. Buyers will be overplaying the downside risk, leaving agents with an ever-widening gap between seller and buyer expectations. In this environment, agents have historically used underquoting to hook a buyer and use that buyer to condition the seller. Whilst endemic underquoting is a current market trend it is not going away anytime soon. In fact, I would suggest we will beat COVID-19 before we beat underquoting.
9) Foreign buyers are now foreign sellers – we have experienced a sharp increase in the number of sellers from offshore in the past 12 months. A flat rental market, the jump in prices and additional taxation for non-Australian residence is seeing many of the demonised foreign buyers from 2015/2016 selling in 2021. Getting specific data on such a point is difficult, but anecdotally we have seen a sharp increase in overseas landlords selling and taking their equity back.
Edited version from HarrisPartners.com.au