In the face of extraordinary pressure on the state and federal economies, property prices have not only remained steady, but have risen. Despite the extended lockdown in Victoria, this clear indication of investor confidence shows that the industry’s resilience is far greater than many anticipated.
We are witnessing an increased confidence in the market, although it is fragile. With the third wave of virus infections in South Australia and the subsequent reimposition of quarantine rules, many are feeling on edge. On the upside, as we come into the Christmas period, most signs are positive. The real estate industry acts as a bellwether for what is happening throughout the broader community. At Devine, we have direct insight into the latest shifts in the market.
Interest in industrial property remains strong not only in Tasmania but also nationally. The government’s ongoing support for the construction sector is contributing to higher levels of activity overall.
The office sector is still experiencing change, the outcome of which is yet to be determined. As new ways of working cause something of a hiatus in this area, many offices are still in a state of flux. Returning to normalcy, with large numbers of workers once again based in centrally located offices, would likely boost confidence further. This would be hugely beneficial for the struggling retail sector. The positive economic flow-on effect from returning to work in office environments should not be underestimated.
There has been welcome interest in commercial property, even though the issues for retail clients remains in the government’s focus. As valuable and welcome as they are, the government’s extended protection legislation and continuation of JobKeeper and JobSeeker support payments are temporary measures. These temporary income support programs promote retail activity, but changes in the way people access purchasable goods appear to be unavoidable.
Online shopping, which was already gaining momentum pre-COVID, is without a doubt the ‘new normal’. Many in the retail sector had already felt these winds of change for a while, but now those winds are particularly cold and unforgiving. Retail has no choice but to adapt to these changing conditions. Failure to adapt, as has already occurred with quite a few well-known national brands, can only result in a race to the bottom. The only sure outcome is that retail will look very different in a few years’ time.
As for the residential leasing market, the wave of people coming into the state is set to once again change the dynamic. The government’s move to loosen travel and gatherings restrictions is encouraging a renewal in the tourism, arts and entertainment space. We may see an increasing interest from landlords in making their properties available for short term stay arrangements again, which will put greater pressure on people seeking to rent long term. This is set to expose the urgency of providing social housing. The government cannot be lax in addressing this critical issue going forward.
Looking forward, as a nation we seem to be teetering on the edge of a precipice. We are poised to step back to safety, but we could just as easily stumble off the edge.
Here at Devine Property, we are curious to see the outcome of the reduction and withdrawal of JobKeeper and JobSeeker. As they are rolled back, we will certainly see further changes across all sectors as the true extent to which these payments have been keeping businesses afloat during the past few months is revealed.
These assistance packages are scheduled to conclude leading into the next winter season for tourism operators. Affected businesses are going to need time to get back on their feet. Some have already moved forward, but others are still caught in the grip of the downturn. Many could benefit from a longer, staged reduction of financial assistance to see them get back on their feet.
The State Government has released its budget for the year, a budget that has been delayed by the pandemic. It is an appropriate budget for the times, as it addresses the real need for government to spend big to encourage the economy back to a more normal environment. We congratulate the government for doing so.
The government has emphasized the need to spend big on infrastructure, which again we support, but we hope they can deliver on this aspiration in a timely manner. The past few years have been characterised by chronic underspending in this area, to the detriment of the industry. Despite the increased spending announced in the budget this year, we remain somewhat skeptical. Time will tell how this pans out.
There remains a question regarding the value of giving grants of support in difficult times, versus changes in the tax base. The risk of the first is whether it will be beneficial in the long-term, whereas the risk of the second is the precedent it sets across the board.
Further, up for debate is the issue of property taxes. Over the long term the value of an annual land tax versus the payment of stamp duty on a sale needs to be reconsidered. However, these perennial debates appear to have been deferred for now. In the meantime, the maintenance of the waivers on land tax for certain commercial properties is welcomed.
This brief overview of the current real estate environment demonstrates that the various elements of the market are often interrelated. Our thoughts on the coming months are largely positive, although of course, we tread carefully as there may still be a cliff.