Western Sydney house and land sales surge despite COVID

The property industry never ceases to amaze me. Just when you think you’ve seen it all, it throws up something unexpected. Take COVID. Logic suggests that a global pandemic would be bad news for the property sector. You would expect to see sales dry up and prices drop as buyers run for the hills. Indeed, when the lockdown came into effect, we saw a sudden halt in sales and some contracts were cancelled. There is no denying there will be negative fallouts, and as a property developer and business owner, I have to admit I was concerned.

But just as it started, news started to emerge from some of our Western Sydney developments that was quite unexpected. New buyers were emerging, enquiries were flowing in and sales were ticking up. Intrigued, I turned to my colleagues at the coalface of these projects to learn more about who and what is driving demand.

·  New home buyers in steady jobs and stable industries are benefiting the most from the current climate.

·  The Government’s HomeBuilder scheme is providing critical support to the sector.

·  The huge decline in approvals owes much more to a drop in apartment approvals which are down 8 times that of houses.

Buyer demand – A tale of two halves

If there is one thing that is clear it is that COVID is resulting in starkly different outcomes for different groups of people. This is an unfair crisis.

Some people are experiencing extreme financial and emotional hardship having lost their jobs or being forced to take reduced hours or pay cuts. People are dipping into their super, contacting their banks for mortgage relief and, if they are highly geared, worrying about the threat of negative equity.

On the other side of the coin are people with stable employment in safe industries. Those with good levels of equity in their home or healthy deposits are finding themselves with opportunities to get ahead.

Nick Duncan, Director of Home and Land Agency, who partners with Legacy Property to market our projects, is seeing two very different stories emerge.

According to Nick, “We’re seeing activity amongst a broad cross section of buyers, most notably first home buyers, upgraders and downsizers. The thing they have in common is that they are in stable jobs and have not been severely impacted by COVID restrictions. These buyers are taking the opportunity to transact at a time when interest rates are at record lows.”

“On the flipside, interest from investors is down as rental markets have been hit by significantly lower demand. We are also seeing less people from the most COVID impacted industries like travel, retail and hospitality, as they generally don’t have the capacity to borrow right now.”

The latest housing finance data, released by the ABS in early July, supports this experience with May having the lowest monthly level of investor lending since 2002, resulting in a 15.6% month-on-month drop (excluding refinancing)¹.

Financial incentives boost buyer confidence

When the Government began introducing tougher restrictions in March, we saw the impact on property buyer sentiment immediately. Almost overnight, enquiries dropped as people sought to understand the situation and the impact it would have on them. As the media and other commentators forecasted a recession and double digit price declines for the property market, many recent holding deposits were cancelled.

This came as a real blow as we were finally starting to see the end of the property market correction of the previous couple of years, with the second half of 2019 delivering strong sales.

But then the Government began to announce welfare and stimulus programs, and there were growing signs that initial attempts to contain the virus were working. Confidence amongst buyers began to resurface.  Without a doubt, the announcement of the $25,000 COVID HomeBuilder grant was the kicker that house and land developments needed to get back on track.

There was a lot of criticism of the initiative when it was announced and it’s not without its issues. But as Nick Duncan revealed, our projects at Caddens Hill and Box Hill are seeing the greatest surge in demand from buyers who can access the scheme.

“Since the restrictions have lifted, our projects have experienced record levels of enquiries and high sales. Projects that offer house and land options under $750,000 have been amongst our most popular. These more affordable properties are well suited to first home buyers who stand to benefit the most from the Government’s incentive programs,” shared Nick.

“We’ve noticed it’s taking longer for people to obtain their finance with more stringent assessment of their capacity to pay, industry stability and job role. But for people who meet lender criteria, it’s a great opportunity.”

The fallout is that prices are remaining stable across our projects and we’ve even had to release new stages, showing just how quickly pent up demand accumulates in an under supplied housing market.

Certainly, I’m not saying this is all going to be smooth sailing. COVID is definitely going to throw up its fair share of challenges for the property industry and we are already seeing impacts on prices and approvals across the sector. But the government’s HomeBuilder scheme, coupled with low interest rates, is definitely playing an important role in supporting the sector during this time. We’re not alone in this view, with 68% of developers surveyed in the latest ANZ Property Council Survey saying they expect the HomeBuilder grant to have a positive impact on the industry².

Are we seeing a flight to safety?

Putting aside financial incentives and the state of monetary policy, there is one other factor I’ve been keen to explore in all this, and that is whether there are any emotional drivers behind the demand we’re currently seeing. Is COVID refueling the great Australian dream of owning your own house on your own block of land in the suburbs?

I wonder if there isn’t a flight to safety taking place. Perhaps the appeal of city-based apartment living has lost some of its shine, with people searching for a little more space as they juggle the demands of living, working and schooling from home. Maybe the move to more flexible working arrangements, which many predict will become a more permanent feature of the working landscape, has freed people up to move further from the CBD. Interestingly, the great plunge that we saw in housing approvals for May – down 16.4% – was the result of a 34.9% fall in unit approvals, with houses down just 4.4%³.

Perhaps there is a yearning for community and the comfort and comradery that comes from a close-knit neighborhood of people who know and look out for each other. Perhaps there is a need to find your own little nook in the world where your family can feel safe and secure amidst the storm.

Of course this is all just conjecture. I don’t have evidence to back this theory up as it’s too soon for any such research to have been made available. But I will be interested to watch the commentary that emerges in the coming years as we take the time to understand and unpack the deepest layers of this most unprecedented time in living history.

Sources

1.     Australian Bureau of Statistics, Lending Indicators, May 2020. https://www.abs.gov.au/ausstats/[email protected]/mf/5601.0

2.     ANZ Property Council Survey, September 2020. https://research.propertycouncil.com.au/research-and-data/anz-property-council-survey

3.     Australian Bureau of Statistics, Building Approvals Australia, May 2020. https://www.abs.gov.au/ausstats/[email protected]/mf/8731.0