Melbourne might be one of the most tightly locked-down cities in the world right now, but a welter of recent property deals shows developers are betting on a rapid return to normality.
"Definitely!" said Joe Gersh, executive chairman of specialist real estate investment bank Gersh Investment Partners, who just helmed a $53 million deal to develop 1,500 new homes at Donnybrook on Melbourne's northern fringe.
The agreement between Thailand's massive Supalai group and Australia's largest residential developer Stockland was agreed in principle in November but inked just last month.
Even with coronavirus trimming forecasts for migration-driven population growth, the developer's view did not change.
"The [investors] looked at this dispassionately," Mr Gersh, who also sits on the ABC board, said.
"They believe in Australia, they believe in Melbourne. They're not deterred by the current situation."
It is a similar story in the inner city, where developers Mirvac and Milieu will construct 500 homes in Brunswick in a build-to-rent project scheduled for completion in late 2024.
"We really see COVID as a bit of a speed bump not dissimilar to the dip in the market of about two years ago" Jason Goldsworthy, national manager of build-to-rent for Mirvac, said.
"We've got another 1,000 apartments being delivered in Victoria under this same model."
This build-to-rent model sees developers construct and own buildings of apartments, and then let them to tenants — generally for long terms.
The nation's largest super fund, AustralianSuper, revealed in June it had invested in developer Assemble Communities, which specialises in similar developments and is constructing almost 200 apartments in Melbourne's inner city.
Green shoots
"COVID has not created anything," Zelman Ainsworth, one of the most prolific dealmakers in the country, said.
"But it's accelerated everything."
The head of retail for behemoth real estate company CBRE is seeing changes in how retailers are approaching their need for space.
"It's no longer, 'Open more doors and the revenue will flow in,'" he said, detailing how successful retailers were focusing on the experience for their customers, whether instore or online.
"The pandemic just forced it along."
COVID-19 clauses are now appearing in contracts. Changes to the number of people able to be inside stores, or the conditions of lockdowns, can impact rents.
Back in May, Australia's biggest home lender, the Commonwealth Bank, got everyone's attention when it modelled the effects of a worst-case 32 per cent fall in house prices as part of an investor update.
However, the most recent CoreLogic figures show only a modest decline in prices across the nation, and real estate agents say that is also what they are seeing on the ground.
"If you compared to 2019 prices, we are definitely achieving those right around the country, so in terms of price falls, they are very moderate and in very small parts of the markets," explained Dan White, managing director of Ray White Real Estate.
But there are shifts, particularly for investors. Many of them are negatively geared, losing money on the properties to lower their taxable income.
With official figures showing rents falling for the first time on record, and owners and tenants starting to lose their jobs, investors are now facing the prospect of losing real money — being unable to make their mortgage commitments.
"The rental market has been probably hit the hardest and so investors have been looking at their properties and deciding sometimes to exit and cashing out of the market," Mr White said.
"However, overall, it's been a pretty moderate drop in the investment market."
CoreLogic research director Tim Lawless agrees.
"Our house view is that housing values are probably going to show a 10 per cent decline, and that seems to be a fairly mainstream view," he said.
"Of course, that's nationally and the trough in the marketplace will probably be coming in mid to late next year."
There are headwinds approaching, such as the winding back of the JobKeeper wage subsidy, a reduction in the JobSeeker rate and the end of mortgage loan holidays from the banks.
"As we do see less stimulus, or less support for workers and for business owners, and then we see lenders expecting distressed borrowers to return to their payment schedules, this is where we could expect to see more urgent sales coming on the marketplace," Mr Lawless added.
Confidence required for growth
The three key drivers of property prices — and development — tend to be interest rates, unemployment and population growth.
Interest rates are at record lows, which is an advantage for real estate prices.
However, unemployment is high and depends greatly on the successful suppression or elimination of coronavirus.
Population growth is also a problem. Housing had soared on the back of a recent surge in immigration — one in 10 Australian residents flew here in the past decade — but that growth might not be as reliable in the next few years.
"Industry is clearly concerned about that," said Danni Hunter, Victorian chief executive of the Urban Development Institute of Australia.
"The business model for a lot of [housing industry] businesses will be under a lot of pressure."
The institute wants a plan for a return to population growth, which has driven Melbourne towards eventually overtaking Sydney as Australia's largest city.
"Without it businesses will not have the confidence to invest, to create a pipeline of work in Victoria," Ms Hunter said.
