What is the impact of the coronavirus on the property market?
While the property market has fared well during past economic shocks, there is no clear cut evidence of how it will perform during a pandemic.
What is evident now is that property transactions have dropped.
Experts are commenting that this is a short-term event and that even if house prices fall, it will bounce back soon.
A lot of luxury / high-end properties can be purchased at a much lower price at the moment. This is likely due to the fall in the share market, many people not receiving bonuses or having their business affected by lockdowns.
In most cases, a downturn tends to affect higher-priced properties more than lower-priced properties.
- Expensive and higher-end markets will be the worst hit.
- Prices might suffer in cheaper, blue-collar suburbs where employees cannot perform jobs remotely or there are chances of unemployment.
- Regional markets that do not depend on tourism and hospitality might not suffer as much.
- Well-located homes in middle-ring suburbs might hold their values.
[July 2021 Update]
- Recent figures indicate that investors are making a return to the property market. Australian Bureau of Statistics (ABS) data shows that in April 2021, investor loans increased by 2.1%, compared with a decline of 1.9% for first home buyer loans.
- Since the end of May 2021, banks have been increasing their fixed interest rates, and rates are tipped to increase in the long run.
Government grants and schemes
- Some states provide first home buyers with a grant between $10,000 and $20,000. The amount varies based on the state and certain property price thresholds.
- First Home Loan Deposit Scheme is available for first home buyers who have at least a 5% deposit. You do not have to pay LMI, even when borrowing up to 95% of the property value.
- Family Home Guarantee Scheme is available for single parents who have saved at least a 2% deposit. You do not have to be a first home buyer or pay LMI, even when borrowing up to 98% of the property value.
- First home buyers may also be eligible for stamp duty concessions and exemptions.
Learn more about the available government grants and schemes for home buyers.
How quickly does the housing market react to a crisis?
The share market is forward-looking and tends to drop quickly when there is a crisis and then to recover before the economy does.
However the property market often takes longer to react to a crisis.
This is because the property market is mostly made up of home buyers not investors and so reacts to unemployment rather as opposed to the share market.
Will house prices drop due to coronavirus?
It is highly likely that house prices will drop due to COVID-19.
While the housing market was gaining momentum due to interest rate cuts and easing of credit conditions, the pandemic has changed the scenario.
Consumer confidence and job security are major purchasing decisions when choosing to buy a home.
Buyers might delay purchasing property due to the financial hardships they’ll face due to coronavirus like job loss, reduced hours, no bonus income, etc. This could induce household debt, so there could be a fall in demand over the coming months.
Furthermore, the ban on in-person inspections and auctions will create a short term hit on property prices.
Even with the emergency rate cuts and quantitative easing, house prices will not remain at their current values.
Experts are indicating that house prices will fall due to:
- The uncertainty of borrowers as they don’t want to take out a home loan if they are not confident in making repayments. Their job and income might be in jeopardy due to the coronavirus.
- Due to social distancing measures, there are fewer auctions and inspections, and property transactions have reduced. While prospective buyers and sellers are shifting online, the number of people viewing properties have reduced.
- Auction clearance rates are in decline, meaning more homes remain unsold.
- Recession is a big threat as there could be two negative quarters of GDP growth and there could be a rise in unemployment.
While the housing market has performed relatively better than the share market against negative economic shocks, the economic slowdown created by the coronavirus must be considered.
Unemployment and property prices
The higher unemployment gets in Australia, the higher the likelihood and magnitude of a drop in prices.
The announcement of the JobKeeper payment to employers of $1,500 per fortnight per employee is expected to reduce the effect of the crisis on unemployment and so may cause a smaller drop in prices than first anticipated.
JobKeeper will no longer be accepted as it ended on 28 March 2021. Lenders will not consider it for serviceability.
Should I buy a house even during the coronavirus pandemic?
The low interest rate environment will not last for a long time, and property prices will bounce back once the economy gains momentum.
Low interest rates mean lower home loan repayments, however, since banks are tightening their lending policies, it might be harder for you to secure a home loan.
If your job and income are stable and not in danger of being cut, then you might have a higher chance of home loan approval. It’s best to get pre-approved now as there will be a cascade of effects that the coronavirus will have on the economy and lenders.
Furthermore, you must be able to make repayments on your home loan and also the costs involved in purchasing a property.
We’ve also created a comprehensive guide for first home buyers to help them buy their first home.
Did you know some of our lenders are offering purchase cash backs for property buyers? This can help you offset some of the costs of purchasing a property and in some cases, pocket the difference.
What if I’m an expat?
Expats can take this opportunity to buy property in Australia, as the exchange rates are low.
A low exchange rate means less deposit required, and you have high borrowing power when converting your income to Australian dollars.
I’m already pre-approved. Will there be any problems?
Brokers and lenders have started reviewing pre-approved mortgages who are going through financial hardship due to the loss of jobs or reduced hours.
A lender is under no legal obligation to fund your loan, so even on the day of settlement, they can withdraw the approval if they want to. Many lenders are asking for a recent payslip or are doing some other kind of employment check before they advance the loan.
They are working in their customers’ best interest, to ensure that taking on a home loan during this time will not put a financial strain on their customers.
For these borrowers, the CEO of Mortgage and Finance Association Australia (MFAA) has stated that they’re working with the Australian Banking Association and consulting lenders to view the issue of “pre-settlement hardship.”
Can I still buy or sell property during the pandemic?
Yes, you can as there are no restrictions in place that will prevent you from either buying or selling a home.
The home buying process has changed, with real estate agents offering virtual tours and private inspections.
You can still sell your property by auction, as virtual auctions have become the new norm. These auctions operate the same way as traditional auctions, but buyers make their bid online.
If you have not exchanged contracts yet, then it might be best to delay moving house. If you’ve already exchanged contracts and are obliged to complete the transaction, then exercise the strict social distancing guidelines during the transaction.
If you’re a seller:
- Consider selling off market.
- Auctions (online) and private inspections are still available.
- Don’t panic and sell your family home. Might be better to rent your home, and rent at a cheaper place for now.
- Get pre-approved before making offers.
- Ensure your job and income are stable.
- Don’t overpay (be sure to do property valuations and appraisals).
- Get a buyer’s agent.
- Conveyancer institute recommendations
- Conveyancer institute recommended clauses
- Minter Ellison notes on contract law
- Maintaining an appropriate distance between each other.
- All internal doors must be open.
- Surfaces must be wiped down and disinfected, especially high touchpoints like doorknobs, table tops, kitchen surfaces, light switches, etc.
- The client should not touch anything in the home.
- A physical distance of 1.5m or more must be maintained.
- Hand sanitiser is mandatory.
- Stringent cleaning of properties.
- Pople showing symptoms should not attend auctions or open homes.
- Use outdoor venues for auctions if possible.
- If auctions are held indoors, use larger venues where physical distance can be maintained.
- Record contact details of people attending open homes and auctions.
- If digital alternatives like online auctions, virtual property tours, etc. are possible, use them.
- Fixed home loan rates are the lowest they’ve been, and it might be a good time to take advantage of this ultra-low interest environment.
- Work with a mortgage broker to see if you’re in a financially sound position to get pre-approved for a home loan. With banks and lenders tightening their policies, we know how to service your loan to the right lender.
- Request for videos of the home you’re planning to buy. Options like virtual tours and digital walk-throughs are becoming more prevalent. Ask if this is a service that real estate agents can offer.
- It’s still best to schedule a private inspection and make sure to adhere to the government’s rules on social distancing.
- Enlist the services of a buyer’s agent who will help you get private viewings and shortlisting houses.
- Make sure your job is secure as banks and lenders are performing employment checks prior to settlement.
- Calling you and asking if you are still employed.
- Calling your employer.
- Requiring a recent payslip.
- Asking you to fill in a short form with 2 – 3 questions about your financial circumstances.
- He started working with us on 1/1/2015.
- He is not on probation.
- His base salary was $80,000 per annum gross prior to the crisis.
- He is employed on a permanent full time basis but has been reduced to 4 days a week during this crisis, which reduces his salary to $64,000 p.a.
- He receives overtime / commission / bonus income of approximately $20,000 p.a., this has reduced by 50% during the recent outbreak.
- His base salary and overtime / commission / bonus income will return to normal after this crisis ends.
- We have no intentions of reducing his hours and expect his income to be ongoing.
If you’re a buyer:
If you’re planning to buy a property soon, seek a cooling off period of 10 days if possible.
There are bound to be valuation delays and issues with low valuations. Furthermore, banks are experiencing a high volume of enquiries, leading to more delays.
You should also speak with your solicitor to add a COVID-19 clause to your contract of sale in case there are issues during settlement or approval.
COVID-19 Contract Of Sale clauses
You can include a clause in your contract when buying a property so that you have the ability to rescind the contract in the event of unforeseen circumstances. This information is for NSW properties only, your solicitor or conveyancer can amend this info for your state or can draft a clause specific to your situation.
You need to get the contract amended before you sign it. You can notify the real estate agent that you’ll need a COVID-19 clause to protect both yourself and the vendor.
Please be aware that the vendor doesn’t need to agree to this and many vendors are hesitant to add a COVID-19 clause. In most cases it is still ok to proceed with the purchase however you should talk to us and your solicitor before proceeding.
How to do a property inspection during COVID-19?
[July 2021 update]
With lockdown in effect, open Homes for sale and rental properties won’t be conducted. However, there are provisions for private inspections, online auctions, property appraisals, and pre-settlement inspections with safety practices.
Private inspections are still allowed, provided the home buyer and the agent follow the strict government guidelines to prevent the spread of coronavirus.
Furthermore, clients can even do a remote inspection of their property by live streaming, videos or through other digital platforms.
When will restrictions be lifted?
|State/Territory||Lockdown period||Are open homes or auctions allowed?|
|New South Wales||Extended to 28 August 2021||No, open homes and in-person auctions are not allowed in Greater Sydney|
|Victoria||Lockdown lifted from 27 July 2021||Yes, open homes and onsite auctions are allowed|
|Queensland||Lockdown is in effect from 31 July to 8 August 2021||No, open homes and in-person auctions are not allowed in lockdown areas|
|Western Australia||No current lockdown, but there are travel restrictions if you’re arriving from a hotspot||Yes, open homes and in-person auctions are allowed|
|Northern Territory||No current lockdown, but there are travel restrictions if you’re arriving from a hotspot||Yes, open homes and in-person auctions are allowed|
|Australian Capital Territory||No current lockdown, but there are travel restrictions if you’re arriving from a hotspot||Yes, open homes and in-person auctions are allowed|
|South Australia||Restrictions in place||Yes, open homes and in-person auctions are allowed|
|Tasmania||No current lockdown, but there are travel restrictions if you’re arriving from a hotspot||Yes, open homes and in-person auctions are allowed|
Please note, the information in the table is as at 2 August 2021. Check the state or territory government website for specific lockdown restrictions.
Even with the easing of restrictions, strict health guidelines will still be observed. These include:
Is it a good time to buy and sell?
It’s best that you buy quickly after selling to reduce the risk of selling at a low price, and buying it later at a higher price once the market recovers.
Do not buy before you sell in this market. The goal is to sell and buy at same time. Look for properties to buy and negotiate, but do not commit to buy until the property you are selling has exchanged contracts.
If you’re concerned about marketing costs and cannot go for inspections due to the social distancing measures, request your agent to do an off-market sale.
Tips for buying a home during coronavirus
Is buying at auction a good option during COVID-19?
When you buy at auction there is no cooling off period and so the risk is higher for the buyer.
In normal times that risk is acceptable for most buyers. In times like this, the risk is high for some people and low for others.
If you have a large deposit and a government job then an auction isn’t too risky. However, if you’re a casual employee with a 5% deposit then it’s a big gamble.
The reality is that many high demand suburbs are still going to auction and so if you’re buying in those areas then you need to know the risks before you proceed.
Employment check prior to settlement
Some lenders have started doing employment checks just a day or two prior to your loan being advanced. This is to make sure that you haven’t lost your job or reduced your hours which could cause you to be unable to pay your loan.
The problem is that if you have committed to buy a property and then you fail the employment check then you may lose your deposit and be unable to complete the purchase. Even if your loan is approved, the approval may be withdrawn!
Typically this check is either:
We strongly recommend that you check with your employer to confirm your employment stability before buying a property.
COVID-19 Employment letter template
You can ask your employer to use this sample letter as a template.
All they need to do is copy it onto their letterhead, amend the details, print, sign and fax it to your mortgage broker.
To Whom It May Concern:
Re: John Smith
We confirm the following details regarding John Smith’s employment with ABC Pty Ltd:
(Delete sections that are not relevant to you)
Should you require any additional information, please do not hesitate to contact Human Resources on 02 0000 0000.
Human Resources Manager
ABC Pty Ltd
Are you buying a home?
Our award-winning mortgage brokers are here to help you through the home buying process and help you get approved even during the pandemic.
They are safely working from home and are happy to answer your questions. Call us on 1300 889 743 or enquire online.