What will happen to the Sydney real estate market after COVID-19? It’s a question on a lot of people’s minds, and even reading the news will confuse you about what is happening, or will happen! Here is an unfiltered view of the current situation from Henny Stier, Principal Buyers Agent at OH Property Group.
If you’ve been reading up on articles about property buying and selling, you’d be forgiven for wondering exactly what the state of the market is! Some argue that the worst is over. Others are adamant that property prices will drop by at least another 20%. And the reality probably lies somewhere in the middle.
The real estate outlook after COVID-19: Main factors
1. Open inspections and on-site auctions are now allowed again. This will boost confidence among vendors who were planning to sell but held off while open inspections were not permitted. It is likely that there will be a fresh batch of ‘stock’ to hit the market, but there may be a slight lag as owners get ready and watch other sellers test the water first.
2. Good properties are still selling. But even the best properties are typically selling closer to the bottom of the price guide and not at the top (let alone above the price guide). Very broadly speaking, prices are 5-10% less (depending on whether it is a house or apartment) than what they were have been in January/February. Sydney is not homogeneous; so, some suburbs have held value better than others.
3. Vendors who listed their property pre-COVID-19 are having a hard time adjusting their expectations. Many are hoping the market will bounce back as soon as the lock-down is lifted. Those who bought a new property before selling are much more likely to accept a discounted offer than vendors who are not under the same pressure.
4. Many buyers have a bargain-hunting mentality. They are happy to buy now, but they want to see a substantial COVID discount or they will simply move on to the next property.
5. Lending has been tightened again and pre-approvals are taking a very long time. Even buyers with pre-approvals can no longer rely entirely on it as banks can (and do) change their minds. So, buyers are cautious about buying unconditionally.
6. Properties need to be priced attractively to sell. A competitively priced property should still sell quickly. It is important vendors are realistic and understand that their first offer could well be from the strongest buyer. They should consider working with that buyer to achieve a result rather than assume there is a long line of other buyers.
7. Many Vendors are choosing to list their property off-market. Instead of throwing tens of thousands of dollars into decluttering, professional styling and marketing, many sellers will now want to test the market first and do so in a low-risk environment whereby they don’t have to do a big launch in an uncertain climate. Some may list quietly to begin with and switch to a full campaign once they have some feedback on price. These off-market and quiet listings can’t be found on the usual Internet portals.
8. There are two factors propping up the Sydney real estate market: (a) low supply; (b) Government incentives and mortgage respite. For now, the market is as stable as it can be given global shutdown. The question is…. once the 6 months mortgage respite and/or Government bail-out ends, how will the economy be? Unemployment is bound to skyrocket as so many businesses will not survive despite the Government lifeline. There could be more distressed sellers towards the later part of this year once the banks’ amnesty period is over.
9. Rental yields will go down so long as the Government is encouraging tenants and landlords to negotiate lower rents. This will deter investors from buying and take out this key buyer segment from the marketplace. This could have an impact on prices overall as it will result in lower competition for some types of properties.
10. Cashed-up expats are starting to set their sights on buying in Sydney again. They have been waiting in the wings for favourable buying conditions, including cheap dollar.
11. There is talk about NSW abolishing stamp duty. Some buyers may choose to hold-out until there is some clarity around this because it can have significant financial implications. However, it is likely that even if stamp duty is to be abolished, the State Government will replace it with an annual land tax. This may or may not be favourable to buyers! The Government needs the revenue and they will make up for any lost in stamp duty via other property-related tax.
Sydney real estate market after COVID-19: Overall
Sydney real estate market fundamentals are generally sound. It comes down to basic economics of demand and supply. During a downturn, many people simply choose to hold on to their properties and not sell. This results in extremely low levels of stock – which in turn holds up the prices. Basically, the entire market is starved of new listings and whatever buyers are there are left to fight over what measly listings there are. The Sydney market should continue to remain relatively steady unless there is a sudden surge in listings or unless the economy goes into a deep recession.
This is an unprecedented time and there is not a single “expert” who can accurately predict what will unfold. Especially if there is a second wave of COVID-19 or another lock-down. Only time will tell how this is all going to pan out. In the meantime, all we can do is to observe closely and react quickly to take advantage of any opportunities which come along.
More from Henny on local property trends: