Australian view

There are now widespread containment measures in place throughout the country, including restrictions on moving between different states - most recently introduced by Western Australia and Queensland. In response, The Reserve Bank of Australia has lowered the official cash rate to 0.25% and the Australian Government has announced a raft of stimulus measures, currently sitting at around AU$189bn (9.7% of GDP), to assist businesses to keep employees, support to households, retirees and those on income support as well as providing loans to businesses. 

In Australia, the housing market had recently bounced back from its mid-2019 trough with mainstream housing prices up around 11% in H2 2019 in Sydney. In recent weeks, auction clearance rates have moderated slightly, see below, but held higher compared to last year. The lowering of longer term funding costs will continue to support sentiment, however, the prospect of significantly higher unemployment will start to weigh on the mainstream market in coming months. 

The continued strength of underlying demand was evident as recent as last week, although as of 26th March, the government have announced attendance at auctions has ceased for large groups, however, online auctions and private appointments are still permitted. In the week ending 22 March 2020, the Greater Sydney auction clearance rate was 59%, lower than the week before but higher than the 52% recorded one year earlier. In the first 13 weeks of 2020, the clearance rate averaged 75% with a total of 5,292 auctions registered. In the week ending 22 March 2020, there were a total of 430 auctions, down from the 767 held one week earlier. By comparison, the first 13 weeks of 2019 saw an average clearance rate of 58% with 4,014 registered auctions, with 506 auctions being recorded in the last week of this period.

Construction sites remain open as workers have been classified as an essential service by the government, following a notable slowdown in activity over the past year. The Sydney new supply pipeline peaked in 2018, with a total 103,030 new apartments built since January 2016 and as result, total vacancy is 3.4%, trending a touch above equilibrium. 

The focus will now be on the rental market following an expected spike in unemployment and short-term accommodation rentals now being advertised in the mainstream housing sector. The federal government is considering several options for landlords who grant rental relief including tax breaks in return for waiving or reducing rents, while the NSW parliament has passed legislation giving the NSW government the power to ban evictions for six months. Although there is now some comfort for investors as only 59,270 new apartments are expected to be delivered in Sydney by the end of 2023, at an average of 14,320 per year, significantly less than the 25,760 averaged over the past four years.