Q&A: Urban sits down with Idle Wealth Director Torey Hensel to discuss the current position of the Australian property market

Recently, Urban sat down with Idle Wealth Director Torey Hensel to discuss the current position of the Australian property market and how it’ll fare in the near future. 

Urban [U]: What are the best ways to spot opportunities for investing in property in a post-COVID-19 world?

Tory Hensel [TH]: Pretty simply, I’d say stick with the research fundamentals starting with the top down. Property has always been about identifying opportunities within a supply and demand framework, and the period we are going through at the moment is just adding another variable to that equation. 

It is important to understand that variable as best as possible and understand the impacts that COVID-19 is going to have on the different property markets within Australia. Obviously, this virus is not going to affect what is a 7-trillion dollar property industry in the same way across the board. So, in terms of what to look for, we are targeting properties and locations that will likely avoid most of the negative effects of COVID-19 but benefit from the recovery. So, areas that:

• Have a slightly older demographic, where the majority of young professionals aren’t highly exposed to hospitality and recreation jobs, i.e. the ones who have been hardest hit from the last few months; 
• Staying away from areas that are experiencing a flood of new rentals coming on to the market from AirBnB hosts converting their short-term accommodation into long term rentals;
• Locations that are in close proximity to proposed large public and private infrastructure projects that are yet to get off the ground.

With the latest figures of over 600,000 job losses and $230 billion COVID-19 bill, the government would want to rectify that as soon as possible, and the best way for them to do so is with the approval of large-scale infrastructure projects. Counterintuitively, the best way for the government to make up on deficits is to spend money creating jobs, which will, in turn, see more people off JobSeeker, free up income for discretionary spending, retail will pick up, inflation speeds up, and the government will reap the rewards in the form of taxes.

Projects that were waiting for a tag to clear might just get a green light across the board and the property market in direct proximity to these projects will be the beneficiaries. So, keep your eyes on the priority development areas.

U: How has Idle Wealth been providing support for clients who are impacted by COVID-19? 

TH: One of the most difficult and frustrating aspects of this pandemic — from the standpoint of investors, at least — has been the murkiness of policies from the government and hyperbolic clickbait headline-grabbing that we see in the media. It has been very difficult to pin down exactly what the policies have been, what the data is actually telling us about the property market, and what the path forward is going to look like.

I think the greatest value that we have been able to bring to our client base is the clear communication of government policy and the facts around the current market performance as we ascertain them. The majority of our clients are not on the rich list; they are mums and dads trying to build a foundation of wealth for their retirement. To be honest, we haven’t seen much protection of them in the media nor in the government, and I feel that it is our responsibility to represent the voices of investors who are also hurting during this time.

U: In Idle Wealth’s latest property update video about COVID-19, it was mentioned that Australia’s property market has a history of performing well during global financial crises. Do you think that Australia’s resilience will re-emerge this time around? If yes, will this resilience attract more international buyers?

TH: I think the Australian market has already shown a significant level of resilience to the economic effects of the virus and I think it is worth unpacking why this has been the case. History, as the question states, the Australian property market does have a history of performing well through global financial crises, and I outlined some of those periods in my latest COVID-19 video, which you can check out on my Instagram, @IdleWealth.

The same reasons property has held up well in the past will hold true in this case. Our economy was in a great position before all this happened. I am optimistic that the additional variables of the government’s economic stimulus and debt holidays for those who are in financial hardship will mean that the number of hardship-induced sales will be far lower than in comparable economic downturns, thus reducing the risk of a crash that the usual suspects have been predicting for twenty years.

As for international buyers, Australia already has a very appealing and economically diverse property market. Add in the extra variables of our positive national response and handling of the crisis, I think that can only improve buyer sentiment and confidence. Another possible reason that property has been so resilient through this time is that the hardest hit areas, and the most affected, younger generations — the waiters or waitresses, bar staff, arts and [recreational job] workers, air hostesses, retail workers — are not your typical homeowners or investors. Though this might have a flow-on effect, widening the wealth gap between boomers and millennials, it does somewhat insulate the property market from the dramatic unemployment spike that we are currently seeing.

U: Since the nationwide lockdown there has been a surge of online visits to off-the-plan property listings. When the pandemic is over, to what extent do you think that these online enquiries will translate into real life?

TH: It’s difficult to say. What the data is showing at the moment is a large increase in online searches, but these searches are not spread out evenly across the board. For example, there has been a five to eight times increase in search volumes for the more premium suburbs in Brisbane, Sydney and Melbourne. But there has been a decrease in search results for areas about 30-40km radius from the CBDs.

Another factor is how do you determine how many of those visits were serious buyers versus people shopping around at home because they are bored at home and have nothing to do? With no physical inspections over the last month, it is unsurprising to me that there has been an increase in online traffic. What is going to determine how many of those visits and enquiries translate into real life will be a combination of the confidence in the market as the restrictions are removed, and how quickly jobs will recover on the other side of COVID-19. 

U: As per your Australian property update in April, how much longer do you think things will get worse before they get better?

TH: Again, referencing my last COVID-29 video update, what the future holds for the Australian property market really depends on a few key events or scenarios playing out over the next few months. The worst-case scenario, as restrictions ease and people get back to some form of normalcy, is a second wave of the virus, forcing another government shutdown. If this does happen, I think there will be a much more severe impact than we’ve seen so far: with many businesses that are just on the brink at the moment unable to cope with yet another hit at their back pocket. On the other side of the spectrum, if restrictions are lifted successfully — as they have been so far — and we continue to get back on our feet as a country, positive growth in the last quarter of 2020 would not come as a surprise.

U: What do you think will happen to residential property prices in the near future?

TH: It is still too early to say exactly what is going to happen over the coming months, and there will likely be varying outcomes in different markets across Australia. But on a macro or national level, there are a number of variables that we still need to consider. There is a possible second wave of the virus, as I mentioned, keeping buyers and sellers cautious. Banks are tightening up lending due to the uncertainty, which, historically, will have a negative impact on price growth. Low migration numbers will definitely impact population growth, and this will likely have a flow-on effect to the lower end, up-and-coming suburbs. We’ve seen so far, and we will continue to see, strong performance around the median price points of higher grade suburbs that offer a mix of location, land scarcity, and owner-occupier appeal.

Again, this is where we are focusing the majority of our attention: vacancy rates, particularly in inner-city Melbourne and Sydney, will be heavily impacted over the short term with (a) a flood of AirBnB properties coming onto the long-term rental market, and (b) the exposure that those locations have to the most affected younger workers who make up the majority of tenants.

To finish on a positive note, with all-time low-interest rates, investors at the moment are able to find cash flow-positive properties in areas where it was impossible to find five years ago. We are seeing a number of people with very healthy retirement balances moving their money out of shares and into a property, seeking a more stable asset class which, from a supply and demand point of view, will provide yet another buffer, reducing any sort of dramatic market fallout.