The unknown impact on property sentiment and pricing as stimulus measures are phased out
Looking back at the past 12 months, no one could have predicted how the COVID-19 pandemic would affect the property market.
Initial forecasts projected that, with impending lockdown measures and high unemployment expected, the property market would experience severe price reductions (with some commentators flagging residential value decreases of up to 30%). Significant risk was predicted around retail premises and office property as staff moved to working from home.
In response, both State and Federal Governments rushed through a range of stimulus and tenancy protection policies. These policies, alongside banks providing mortgage holidays and the lowest interest rates on record, have led to unprecedented confidence in residential property and have cushioned the impact of COVID-19 across other subsectors.
Looking forward, in 2021 we expect:
- Residential real estate will continue to appreciate in value (driven by interest rates expected to stay at current levels for the next three years) and the perceived safety of bricks and mortar. Stock designated for investors, particularly ‘off the plan’ sales which historically appealed to Chinese investors, will come under pressure in high density developments away from job and lifestyle hubs.
- Large land subdivisions and re-zoning opportunities may be more difficult to sell given the need for Foreign Investment Review Board approvals.
- Office rents, particularly in secondary locations, will face headwinds as companies look to minimise their footprint and as working flexibly becomes standard operating procedure.
- Hospitality, leisure, and tourism assets will require a conservative funding and operational structure with international borders expected to remain closed and domestic travel curtailed.
- Industrial and logistics property will continue to be in high demand based on the growth of online sales and institutional investors chasing stable yield.
- A continuation of the recent upward trend in restructuring activity, with particular focus on distressed residential development assets backed by non-traditional financiers.
The big unknown is the impact on sentiment and pricing as stimulus measures are phased out in the next few months and the evolution of COVID-19 and Australia’s response.