As the Government looks at easing restrictions over the coming weeks, it seems that the property market has made it through what is (hopefully) the worst of the covid-19 crisis comparatively unscathed.
Of course, that is referring to the property market in general, as a single whole. There are without doubt sub-markets that have been impacted.
The coronavirus is changing our perception of what’s important, and it’s only reasonable that these changed perceptions will also affect what people are looking for when it comes to buying property.
Health experts are warning that lockdowns may be a recurring phenomenon until a vaccine is devised, tested, produced, and distributed to the majority of the population. So while we’re all hoping to put this behind us in a few months, we may be dealing with this on-and-off for years to come.
This means that some markets that used to be sure-fire winners in the pre-coronavirus world, may not be in the post-coronavirus world. And some markets that used to underperform may become sleeper hits.
These are the four factors that I predict will change the property market going forward.
Number one: proximity to the city.
In 2017, the City of Melbourne reported that 381,000 people worked in the CBD on a daily basis. A further 78,000 people commuted to the city on a daily basis for educational purposes. Plus another 170,000 people visiting for non-work and non-educational purposes. That’s 629,000 people commuting to the city daily, out of a population of 4.8 million people at the time.
When the coronavirus restrictions lift, how many of those people are going to resume commuting to the city every day like they used to? Businesses have implemented remote-work systems, and schools have implemented remote learning. Many people who were reluctant to implement such systems by choice have been forced to by circumstance, and I don’t think that’s a genie that can be put back in the bottle. Are business owners going to want to continue paying expensive commercial rent to house their entire staff, when they’ve already seen that their team can work remotely? Are employees going to be happy going back to hour-long daily commutes? I can’t say for certain, but I predict that there will be a significant increase in businesses opting to continue remote work, even once the restrictions have ended. Twitter announced that they will be allowing employees to work from home indefinitely, and many eyes around the world, especially among the other large tech firms, will be watching them to see how that experiment pans out.
If this prediction is correct, then we’re going to see reduced demand for homes close to the CBD. Why pay more to live closer to the City when you work from home? In fact, people are more likely to move further away, where land is cheaper, so they can buy larger homes for the same price. I think couples wanting to move further out from the City so they can buy a house with space for home offices is going to become a common change.
Therefore, I predict we’re going to see fringe suburbs get renewed demand, and this demand will equal price growth.
Number two: regions dependent on a particular industry for employment will be volatile.
Certain industries have been devastated by the outbreak, so regions that are heavily dependent on those industries will also suffer. Demand for agricultural products has dropped by as much as 20%, as closed hotels and restaurants stop placing orders. Delays in transport and logistics have dire implications for perishable foodstuffs, and shortages of animal pharmaceuticals may have long term effects on farming. Unfortunately, it seems our Aussie farmers just can’t catch a break, as all of these factors will have effects on regional land prices.
In addition to agriculture, areas with a heavy reliance on petroleum, manufacturing, hospitality, aviation, and tourism will all experience price drops as unemployment and income loss in these industries stifles demand for property.
There is an opportunity to buy property in these affected areas for a low price, but don’t expect rental income for a while if you do so.
Number three: internet connectivity will be a key selling point.
Working from home in a modern world requires a reliable internet connection. Despite claims from the Government during the NBN rollout that 25 megabit per second speeds was plenty, the last few months have demonstrated that it is not. A family with two working adults on teleconference calls, working with large files, and children either remote learning or watching online content is going to encounter problems with the internet speeds that most of the country is currently getting. What working professional wants their important meeting with a big client to cut out because their kid is streaming Bluey?
NBN Co. has reported a 62% increase in internet usage during work hours during the lockdown, due to people working from home. Suburbs that offer Fibre to the Premises NBN connections or developments with private fibre connections are going to be popular with families that have been burnt by current poor internet speeds. All else being equal, wouldn’t you rather live in an area with a superior internet connection?
Number four: proximity to schools.
“Why should I pay extra to live closer to a prestigious school, or in a good school zone, when my kids might be remote learning?” This is a question that I think lots of parents are going to be asking themselves over the coming year.
Even if schools are open as usual, there will be a significant number of parents who won’t want to return their children to school until they’re confident that the pandemic is well and truly past.
This won’t be a permanent change, or even a particularly long-lasting one—parents will return their children to school eventually. But in the short term, I expect prestigious schools won’t be quite the draw that they used to be.
Property will remain a viable investment choice.
While the specifics of which sub-markets will perform are up for debate, as are these predictions, the fact that property has remained a robust investment choice during the covid-19 crisis is harder to argue against. Prices have remained stable during the worst of the crisis, and auction clearance rates skyrocketed as soon as public auctions became viable again.
For investors with the required liquidity and cash flow, an investment property is a worthy addition to their portfolio.