Another Lockdown For Melbourne Harms A Property Market Rebound

Another lockdown in the metropolitan area of Melbourne and Mitchell Shire has everyone on tenterhooks. Just when Melbournians were breathing a sigh of relief that the pandemic lockdown was behind them, a few false moves including a lack of social distancing and not wearing facemasks, saw a spike in positive Coronavirus cases and the return of lockdown measures.

Commercial Property

With restrictions on movement except for essential items, real estate agents and other workers in the housing and commercial property industry are now on the back foot.

The initial country-wide lockdown a few weeks ago saw a surge in sub-leasing listings of commercial buildings including office space in the central-eastern CBDs of Sydney and Melbourne. With the return to lock down a few days ago, commercial office and retail sectors are heading for an even rougher ride over the coming months with lower sales and an upturn in sub-leasing activity.

Lease Renewals

Commercial lease renewals will be challenging for landlords. Tenants now ‘once bitten, twice shy‘ will be hesitant to commit to long leases without hefty incentives. Tenants will also want favourable terms for lockdown-like scenarios.

Lease Incentives

Landlords will need to get creative to lock-in commercial tenants. Rent abatement (lower rate), the inclusion of a rent holiday or rent-free period, and contribution to a fit-out are just some of the incentives that will need to be part of a long term lease.

Landlords have rates to pay and mortgage repayments so they will be motivated to prevent prolonged vacancies. Some landlords are even willing to give money back as part of the deal.

Residential Property Sector

In Melbourne, Australia, the return to regular residential property market activity a month ago was welcomed, albeit at lower levels than desired. Most real estate agents are not high earners with the average annual income in Australia around $48,000.

See Michael Yardney’s blog post for more information on how real estate agents are remunerated and what they typically need to do to earn the big salary.

The residential property sector in Australia was hit hard by COVID-19 and the first lockdown, similarly in New Zealand, UK and USA. It is, therefore, no surprise that the new lockdown in Melbourne which commenced Wednesday 8th July 2020 will not be kind to property sector workers, including sales agents.

Homebuyers Back Off

On Domain Real Estate site, a property market slowdown is a given. When homebuyers are reluctant to go through the sales transaction, and in fairness to them if they can not view the home, why would they be confident purchasing it sight-unseen.

Not to forget to remember how precarious a homebuyer’s job security may be, property sales transactions will take a lot longer to process.

Mortgages

Plus home loan lenders may also see the second lockdown as a sign that business will not return to normal for some time, maybe not for years. Lenders have been taking a more risk-averse stance on LVR (loan to value ratio), i.e. the percentage of the property sales price they’ll forward to the mortgagor. This second lockdown is not giving them a reason to change tack.

Debt servicing is a top priority and many homebuyers take-home income will not stack up for a large home loan.

Buying real estate in a recession or a lockdown takes a lot of confidence, and it’s why we all want to know if and when property values drop and by how much. Lenders don’t want their borrowers in negative equity territory hence why in a recession the best home buyers are investors.

Real Estate Agents Now More Technology Savvy

On a slightly more positive note, the real estate agencies who kept putting off investment in newer technologies like 3D virtual tours, have had to get on board to remain in business. In fairness to the agency-laggards, homebuyers prefer traditional home viewings too as they can use their senses like smell and touch.

However, the 3D tours have proven valuable, insofar as they pique buyer interest and prove useful in getting the conversion i.e. buyer inquiry via the website. Plus in the absence of a real-life walk through a virtual tour is the next best thing.

Summary

Another lockdown is the last thing anyone needs, but for Melbourne, and Mitchell Shire it’s a reality. The only way to get through it is to reframe your reference points to the new normal. Get a better deal on your lease or buy that property for less. Whatever you do during the lockdown, remember tough times don’t last tough people do.