May 20 2020
The COVID-19 pandemic has caused global widespread panic and uncertainty. A weak overall economy and a fall in major stock indices are expected to significantly affect investor confidence in the housing market. Furthermore, the social distancing measures in place to control the spread of the virus have limited many people’s ability to work. Contractors and building development companies have had to significantly cut costs, lowering their margins and undercutting to acquire work. An estimated two-thirds of tradesmen have lost more than 20% of their income during the coronavirus pandemic.
According to the Australian Bureau of Statistics (ABS), more than half a million Australians lost their jobs between March and April 2020. Higher rates of both unemployment and underemployment have reduced household disposable income and put pressure on daily living expenses:
- Unemployment rate increased from 5.2% in March to 6.3% April 2020
- Underemployment rate increased from 8.8% in March to 13.7% April 2020
On 29 March 2020, the Federal Government announced a moratorium on the eviction of industrial and residential tenants, if they cannot pay rent due to the COVID-19 outbreak. This announcement has provided relief to tenants undergoing financial distress due to the COVID-19 pandemic, as they are not forced to seek housing elsewhere during this difficult time. The latest study from the Housing Industry Association (HIA) estimated that demand for new homes has fallen 22.8% in the past two months. IBISWorld anticipates dwelling commencements to decrease by 16.6% in the current year, and fall at an annualised 5.7% over the five years through 2019-20. These trends combined will likely substantially limit demand for Residential Property Leasing and Management industry services in the current year, and the start of the next five-year period.
The Residential Property Leasing and Management industry in Australia does not have any major players, as the industry is highly fragmented. Many industry operators are self-employed property managers or boutique firms. Nevertheless, the subdued demand for industry services is anticipated to impact larger companies such as Colliers International Holdings (Australia) Limited and McGrath Limited. While these enterprises have operations across multiple sectors of the Property Operators and Real Estate Services sector, revenue derived from providing property management services will likely be affected by subdued demand. However, some industry operators have adapted quickly to social distancing restrictions and utilised existing technology to continue providing services to clients. For example, McGrath Limited has successfully implemented live auction and virtual inspections during the lockdown period, allowing interested parties to view properties and participate in auctions from the safety of their homes in real time.
While the consumer sentiment index is projected to remain in negative territory in 2020-21, it is forecast to slowly recover over the next five years as economic conditions improve. The national unemployment rate is forecast to rise by 8.38% in 2021, as the full impact of the COVID-19 outbreak is realised. Nevertheless, business confidence is anticipated to rise over the next five years as the Federal Government gradually eases COVID-19 social distancing and lockdown restrictions, restarting trade and allowing businesses to resume operations. However, the Federal Government’s three-step plan to ease restrictions will likely be slow and done cautiously. Furthermore, the pace at which demand for Residential Property Leasing and Management industry services rebounds may delayed further with state and territory governments controlling their own property renting rules and regulations. The industry’s recovery may be further inhibited by the government’s decision to defer rental payments, leaving investors with little or no rental income, and impact industry performance over the next five years.
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