Let’s start this blog with some facts.
Fact 1: For the first time, everyone in the Free World now has a clear understanding of the fragility of Capitalism.
Fact 2: The pandemic is dramatically worse than the GFC when 2/3rds of U.S. business sales dropped by as much as 15%. In Australia during the pandemic 50% of businesses saw turnover drop by greater than 30%.
Fact 3: For the first time since the World Wars, we have all experienced a degree of FEAR. The recovery of world economies will be governed by how individuals manage the Fear Factor. The F/F will remain until there is a vaccine.
Fact 4: Post the GFC, America generated 21.5 million jobs in the 11 years to 2020. In the 5 weeks from the middle of March, America lost 22 million jobs. The unemployment rate in America now is 14.7% which is well beyond recession levels. 20% defines a Depression.
Fact 5: The world of digitisation has been brought forward by a decade. The ‘home office’ is a permanent feature from now on. That is not good in the long term for offices as an investment. Business operators will enjoy lower rentals and better outcomes from more productive employees. Households will enjoy more family time by not having to travel to work. Employees will be able to move to cheaper housing in Adelaide whilst working for the boss in Sydney. Webinars will be the communication link with staff. The second car will be redundant, less cars, less pollution. That will keep Grumpy Greta happy.
The real estate market has been difficult with turnover dropping by 25% and prices by 5 – 7% confirmed by the following examples. In each case these properties were formally valued pre-Christmas and subsequently sold in the last 4 weeks by my agency.
Richmond: Valuation $535,000, sold for $500,000. Drop 6.5%.
North Adelaide: Valuation $435,000, sold for $410,000. Drop 5.7%.
Rosslyn Park: Valuation $975,000, sold for $900,000. Drop 7.7%.
Malvern: Valuation $1.85m, sold for $1.72m. Drop 7%.
The market has been affected by the restrictions, the most obvious being the closed borders. Migration, particularly student, has virtually stopped and this will have an effect on the rental market. Figures from Core Logic indicate that rents dropped by 8% annualised in April, the biggest drop in 25 years. Our agency was quick to advise tenants that rent renewals would be offered with no rent increases and we have been very successful in converting a lot of our lease arrangements on this basis in the last 2 months. This may not last particularly as unemployment rises to 10%
By the end of July, the reality of the job market will start to dawn and by the end of September it will be confirmed. In the short term the Job Keeper arrangement is camouflaging the true unemployment number. 6 months ago, I talked about the KPI of under and unemployment being 13.5% but now that figure is well clear of 20% and rising. By the end of September many casual workers will know whether their old jobs are still available. Indications are that as many as 30% of these will not be renewed because businesses have been forced to operate differently. The example of home delivery food as a substitute for restaurants will become a new normal. Food outlets will produce their menu from ‘ghost’ kitchens using less space and lower rents. Eating in is on the way out.
The downturn in tourism has decimated the role played by Air BNB. Landlords are now seeking long term tenants because there is no demand in the short-term market for this facility.
Banks will take a different view of things once the unemployment numbers are confirmed. A question in loan applications will be asking “In the event that there is another pandemic will your job security be affected.” Only a public servant could answer in the negative. The time is now to introduce a single property tax and abolish all property taxes of stamp duty, land tax and ESL. This will mobilise the property market to give first time buyers a decent chance at home ownership. Retiring ‘Baby Boomers’ will be able to deposit up to $300,000 per spouse into Super as they downsize the prime place of residence.
Thankfully S.A. is not over-supplied with speculative high-rise apartments nor is it coming off an over-bullish residential property market. Our economy however is not travelling well and that was accentuated with the adjustment in the GST distributions that were advised prior to Christmas. Perhaps it’s time for Premier Marshall to negotiate a deal with the Prime Minister that allows for the cancellation of the Submarine contract for a new deal relating specifically to a new manufacturing industry in S.A. The real threat to our civilisation is a pandemic and the next conflict will be a cyber war. There is no link between these 2 events and submarines.
Real estate is in for a challenging time but Jackman & Treloar endured the 2 World Wars and a Depression from 1914 – 1945. We are committed for the long term and ready for the hard yards.
We are in this together!