The COVID lockdown in Melbourne is creating challenging conditions for the real estate market. And that’s putting it mildly.
There are no inspections permitted.
That includes pre-settlement inspections, building inspections, and rental inspections required before bond payments can be returned to vacating tenants.
Only those desperate will try to sell now. And believe me, there are a few of them out there.
The rest will wait it out. Low stock is supporting prices for the time being.
It’s not surprising to see Melbourne suffering harsher conditions than other states.
You notice repeating patterns if you study economic cycles. A study of the past can reveal the future.
Stock and commodity trader WD Gann is well known for this strategy. Gann once said:
‘The 30-Year Cycle is very important…In making up an annual forecast you should always make a comparison with the record 30 years back.’
You can test this yourself.
Take a major event in the market and count forward 30 in any period: days, weeks, or years.
Give or take a degree or two, you’ll often find a repeat.
Melbourne suffered most in the early 1990s downturn out of all the states.
It took 36 months to reach its low.
Melbourne also saw a stark drop in population growth at that time.
Around 30,000 people left Victoria for other states in 1994.
The population only grew by a minuscule 10,200 people that year.
The population growth rate was just 0.5% between 1991 and 1996.
30 years on, a similar scenario is playing out today.
Extended lockdowns are hitting Melbourne harder than any other state.
There’s a stall to international immigration.
And I doubt there’s anyone right now sitting in freezing locked down metro Melbourne who doesn’t wish they could immigrate to the warmer regions of Oz.
Louis Christopher (Director of SQM Research) has flagged that new restrictions could potentially lead to a 30% drop in Melbourne’s house prices.
I’m not so pessimistic.
A few other countries have had much harsher lockdowns than Melbourne.
At the height of lockdown, all non-essential businesses shut. Residents could only travel 100m from home.
For a while there, it looked like they were going to eradicate the virus.
A couple of months on and cases are soaring once again.
Source: Our World in Data
And the real estate market?
After initial reports that it would collapse, it’s now post-lockdown and recovery is strong.
Agents are seeing a dramatic surge in demand from overseas residents.
Israel is looking like a ‘safe haven’ compared to the US.
It’s hard to imagine that anyone could consider Melbourne a safe haven at the moment.
Except when you consider the situation in Hong Kong.
30 years ago in response to the Tiananmen Square protests in China, PM Bob Hawke opened the gates and allowed 40,000 Chinese students to stay in Australia.
And today, PM Scott Morrison is facing a similar situation.
10,000 Hong Kongers residing in Australia on temporary visas are now eligible to apply for permanent residency.
That would have minimal impact on Australia’s property market in itself.
But bear in mind that there are currently over 100,000 Australians living in Hong Kong.
They own about 600 firms.
Most of the expatriates are Chinese Australians (or Hong Kong Australians).
They are wealthy, and they are looking with a keen eye toward Australia.
That’s not my opinion.
It’s backed up by the CEO of Juwai.com. The number one Chinese website that lists overseas property.
‘Hong Kong demand for international real estate and residency programmes has rocketed over the past few weeks.’
According to Juwai, Australia is currently the top foreign real estate investment location for Hong Kong buyers.
Hong Kong is the most expensive real estate in the world
Our property looks cheap in comparison.
Furthermore, it’s on a freehold title.
No surprise then that Lily Chong, a real estate agent in Perth, reports that:
‘Inquiries from Hong Kong shot up more than 40 percent since mid-June and more than 140 potential buyers took part in an online forum last weekend… “After just a few days we have already closed one sale sight-unseen.”’
But Melbourne, Sydney and SA are also seeing a surge in enquiries.
And not just from those in Hong Kong.
Reports are coming in that COVID has given Asian buyers further motivation for cross border transactions.
According to the Foreign Investment Review Board, investors from China, Hong Kong, Singapore, South Korea and Japan have spent more on Australian real estate during the past decade than buyers from the US, the UK, Canada, New Zealand and Germany.
A total of $113.2 billion worth of Australian residential and commercial property.
That’s only a small proportion of the cost of all transactions. But these buyers tend to focus on very specific areas. If you have read ‘The Cashmore Files’, I go into a little more detail.
Knowing where the money is going gives a clue to the markets that will benefit.
Here’s a quick breakdown.
Data from realestate.com.au is showing that in Melbourne, searches focus on Doncaster and Doncaster East.
In NSW, it is Sydney, Chatswood and Epping.
In Queensland: the Gold Coast, Indooroopilly and Brisbane City.
And in South Australia: Adelaide, North Adelaide and Norwood.
It’s a potential wave of money that will contribute to the inflation our property markets will have into the second half of the real estate cycle.
Something we’ll expect to see in force post COVID.
That will carry us into an almighty real estate boom into 2026.
And it’s totally in accordance with what the real estate cycle predicts.
For Profit Watch