Which areas will buck the trend?
John Lindeman reveals why some property markets are likely to buck the downward trend and where to find them.
As the recession deepens, price and rent falls are emerging in inner urban unit markets due to the collapse of short term rental demand. In addition, aspiring first home buyers and investors are finding it more difficult to obtain housing finance from the major lenders as they reassess and limit their exposure to applicants and areas they see as being of increased risk.
Banks will favour applicants and areas with lower risk of loss
Although the banks must continue to lend money in order to generate their profits, they will view housing finance as far less risky than unsecured loans and credit card debt.
They will also prefer those applications for housing finance which meet the following “recession proof” criteria.
- Existing home owners upgrading to a second or subsequent home who have more equity and higher household incomes than typical first home buyers.
- Applicants employed in industries such as Federal and State public service, local government administration, health, education, water, gas electricity provision, waste collection and public safety.
- Houses located in the well-established middle suburban areas of our major cities which exhibit high price stability and are less likely to be impacted from economic downturns.
As most of the preferred suburbs have little to no further capacity for housing development, any increase in buyer demand where the supply of houses for sale is currently in balance with the demand from prospective buyers is likely to result in rising prices.
The issues for investors wishing to take advantage of the potential growth in such suburbs are that they tend to be high socio-economic locations with house prices well above the median for the city and rental yields are extremely low, making them negatively geared, even in the current low interest rate environment.
Many retirees will be motivated to downsize
One significant group could be impacted by the recession, even though they have no need for housing finance and are not directly affected by rising unemployment. They do however, have an escape route which could indirectly lead to housing market growth in some locations.
According to the latest Australian Government Retirement Income Review (2019) one quarter of Australians aged sixty-five and over receive only a part Age Pension, while one third receive no Age Pension at all, continuing to work or relying on other forms of income support, such as share trade profits, superannuation returns, dividend payouts and imputation credits.
As this recent announcement from NAB foreshadows, superannuation returns and share prices will fall over the next few months. Many companies in the most exposed industries such as finance, tourism, travel, hospitality, sporting, recreation, accommodation and construction will provide lower dividends or none at all.
As a result, over half of our four million retirees will soon find their financial positions eroded.
Some may be motivated to draw on their assets, such as selling the family home and then downsize to a smaller well located unit or villa in the same city, or to a townhouse or house in a cheaper regional retiree destination.
They will then be able to keep whatever is left from the sale proceeds as an income supplement in their remaining years.
This trend will not be sufficiently large enough to cause a slide in sale prices as retirees sell their existing family homes, because there are so many of these in the leafy established suburbs of our major cities.
It could, however, lead to price rises for low maintenance, easy access and highly secure properties with buying prices well below those of the family homes being sold. These are likely to be located in the seaside, riverside and harbourside suburbs of our major cities as well as in regional retiree destinations within easy and safe access to the nearest capital city.