The COVID-19 virus’ impact on the property sector

In this article we have endeavoured to capture the essential impacts of the change in the market, without wishing to be overly dramatic.

The world has changed. What would have been considered preposterous one short month ago has now become the order of the day. Governments, once consumed with delivering balanced budgets, are now announcing stimulus packages, and now survival packages.

Government intervention has become the new norm as thousands of businesses close and millions of Australians lose their livelihood.

People have been directed towards home isolation, meaning shoppers have become a rarity, and the entertainment, hospitality and retail sectors have been knocked for a six. For many, it has been a horrendous time.

What has this meant for the property industry?

For sales: One short month ago there was a shortage of housing. It was a seller’s market. Now the market is more balanced. Sale prices have levelled and – according to Core Logic’s Tim Lawless – in some cases fallen. Of course bear in mind we are coming off unprecedented levels of property activity and growth.

Still, every cloud has a silver lining. Even though sellers are being more cautious, so are buyers, and this does provide a great opportunity for the first home buyer with deposits to now enter the market.

For rentals: The students have gone, the tourists have gone, and Airbnb is also under stress. Properties that were once in high demand as rental properties now are vacant. Hotels are empty and many have either closed or been commandeered by government as hospital annexes.

Long term tenancies are once more available, and landlords are keen to have permanent tenants occupy premises once again, and the market has become fluid. Significant numbers of the properties now coming up for rent have been at the higher end of the market. And most of those have been advertised as being fully furnished, which, as the REIT President Mandy Welling has stated, suggests that come the time they will be back into short-term rental. We make this note of caution to landlords, that while it is important to have properties generating revenue, landlords do need to take care to ensure that they attract responsible tenants as the power to evict at this time is now limited. Also once tourists return – and they will – private owners will be competing with hotels both existing and under construction for occupancy. Hotel operators will no doubt be aggressive with room rates and this will make it more challenging for private operators.

Conversely, even perversely, the situation regarding affordable accommodation remains grim. As we have stated previously, there is a chronic shortage of available properties at the “affordable” end of the market, and as more and more people fall into this category, it will be a responsibility of government to ensure that the level of homelessness does not rise. In Tasmania, that could be a herculean task.

At the outset, we make this point: not everyone is suffering deprivation and hardship. If tenants can meet their obligations, then they should do so. This current circumstance is not a leave pass to abrogate responsibility, and contractual arrangements remain in place.

Residential tenants who have been affected by the business downturn have access to government funds to tie them over, either as employees of businesses which themselves can access government support to keep employees on their books, or through increased welfare payments. Landlords who have mortgages have been advised to discuss their circumstances with their financiers and banks, and we expect further announcements from the government on this matter as the situation continued to develop.

The commercial world is also suffering greatly. Although some businesses are riding the storm, many commercial tenancies, particularly in the food and retail sectors, have been hit hard. Some have been able to adapt and maintain some cash flow, but many are now “in hibernation”.

There is a range of government support available, both at a state and federal level, and we would encourage business proprietors to access that support.

Landlords do remain exposed. Some banks have agreed to defer mortgage payments until such time as the crisis has passed, and this has made it easier for property owners to withstand the pain of tenants that can no longer meet rent commitments. Again we await further advice from government.

The industry is facing tough times and we are entering unchartered waters. Many sectors are hurting. For those in difficulty we believe it is incumbent on landlords and tenants to discuss their particular circumstances with each other and try and work to a resolution, as it affects each party. Landlords and tenants need each other, now more than ever. Once this crisis falls away, it will be in everyone’s interest for the economic ball to start rolling again, but for that to happen it will require resilience and understanding at this time.

It may be harsh to say this at this time, but the present circumstance has also exposed those who have been highly geared, or borrowed too heavily, and have now found themselves with little or no flexibility. Debt traps can become death traps. As we go forward, it will be important to ensure we manage the finances surrounding our individual recoveries responsibly.

At Devine, we remain fully operational, and we are available to assist all clients, tenants and landlords alike. We are here to help.

PS

Government assistance has been a moving feast over the last few weeks, with more and more support being announced on a regular basis. Information on government assistance can be found as follows:

State:
More information can be found at
www.business.tas.gov.au

Federal:
More information can be found at
www.business.gov.au