Which suburbs are at low risk and which areas could even thrive despite the current environment of uncertainty.
The property market is unlike other assets such as commodities, bonds or shares, because around sixty per cent of our dwellings are owner occupied.
Their owners have no interest in cash flow, leveraging, depreciation, rental yields, capital growth or gearing from their properties.
Because the purpose of these dwellings is to provide families with security and lifestyle.
They are not bought or sold for profit, but when family or personal circumstances change and a different home in another location will better suit their new circumstances.
Long hold periods provide immunity to short term risk
Because of our constantly growing population, they offer constant demand and price stability.
Even though they are already a low-risk investment, the risk is minimal in well-established suburbs where properties experience long hold periods between sales of up to twenty five years.
This makes them relatively immune from economic downturns.
High numbers of investors create the greatest risk
This is totally different from the other thirty percent of dwellings that are owned by private investors, whose occupants are renters.
These properties need to generate returns in rent and capital growth to their owners and they present high risk if rental demand is falling, or over-development has created too many rental vacancies.
Due to border closures, rental demand is falling in localities where overseas arrivals have tended to reside on arrival, where international students have rented and where overseas tourists have holidayed.
The inner urban unit markets of Brisbane and Sydney are being badly impacted but the worst affected is Melbourne.
Melbourne’s annual intake of over 60,000 migrants has collapsed, while the numbers of international students living in Melbourne are declining as they finish their courses and return home, not being replaced.
Unit rental vacancies in Melbourne CBD have doubled in the last three months to more than 3,500. Property managers such as Apartments of Melbourne have returned 90% of their managed apartments to their owners – empty.
The current moratorium on mortgage repayments is giving these apartment owners some breathing space, but if the moratorium is not extended beyond next March, many of these units will have to be sold.
So what can save this situation?
We can expect a surge of overseas arrivals from troubled locations
Once our international borders are reopened, there will be a surge of overseas migrants from troubled parts of the world such as Hong Kong, Lebanon and South America, but these new migrants may also prefer new locations.
This could lead to a rise in rental demand in cities such as Sydney, Adelaide and Brisbane as well as Melbourne.
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