• Melanie Dennis

COVID-19 & the Melbourne Property Market

Melanie Dennis & Warwick Brookes

Directors @ Domain & Co

April 2020


Melanie

My name is Melanie Dennis. We started Domain & Co. around 20 years ago to assist property investors. We are Property Managers and Advocates, helping people mange, buy and sell properties. We are a sounding board for our clients ensuring they're heading in the right direction. Property management is definitely my passion, which I'm still very much involved with. And for those who do not know me, they know I'm very system and procedure driven, which helps me run a pretty tight ship.

Since Covid-19 there have been so many changes in the way we are living and doing business. Certainly, in our business, it feels like we have been putting new policies and procedures in place daily and getting updates out to our owners, tenants and team members - ensuring we keep everyone educated and up to speed.

So now with the eviction moratorium and hardship in place for tenants, it's added another level of expertise to our property management role. Our team has certainly been working very hard through the last few weeks and months, sorting all these changes to real estate out. The government has also added new laws around social distancing, which means our ability to hold open-for-inspections and auctions has changed, forcing the real estate industry to become more tech savvy in the way they operate.

We've been fortunate at Domain & Co because we have been very tech savvy for the life of our business. We’ve had virtual tours in place for our rental properties for the last couple of years, so our landlords are lucky to already have that in place, with tenants able to view their properties ‘virtually’. All of our systems, procedures and files are all cloud-based too, so we haven’t had physical files in our office for some time now. And in times like this, it is very much paying off for us.

Warwick Brooks, who is also a director of Domain % Co, is here today to answer some questions about Covid-19 and the property market. Warwick, why don't you tell us a little bit about yourself?

Warwick

Sure. I'd first like to point out that Melanie and I are socially distancing and we are recording this video in separate parts of the office. Normally we would be sitting together.

I've been in property for over 25 years. Two of those years were selling real estate, which I didn't really enjoy too much. The last 23 years have been helping people buy and sell real estate from an advisory point of view – so buyer advocacy and vendor advocacy. So over those 25 years in real estate I’ve seen a lot of different changes and a lot of ups and downs. It's been a bit of a rollercoaster. Especially the last couple of years. Obviously, what's happening now is unprecedented and is going to have a considerable impact.

Melanie

Why don't we unpack the changes with Covid-19. How have the changes with open-for-inspections affected properties for sale?

Warwick

Open-for-inspections for large groups of people have been banned and social distancing is now a requirement. You can still view a property, however there are time slot requirements in place – typically about 10 minutes per person, depending on the size of the property. So it’s changed the way we do things and we’ve seen a lower demand for buyers. It’s actually made it easier for Agents to have one-on-one time with clients doing private inspections. But it's certainly a changing market. Everyone is bringing hand sanitizers and facemasks to inspections ensuring everyone feels comfortable.

Melanie

Absolutely. And it's very much the same with property management. As I mentioned before, we are offering virtual tours and doing video walkthroughs for properties. We can only do virtual tours on empty properties though. Many people are actually opting out of coming to a physical inspection and applying to rent a property based on our virtual tours because they are very realistic. They look pretty awesome. I'm very proud of the virtual tours we've been doing. When we have an open-for-inspection we supply gloves for everybody and ask them not to touch any furniture or anything. Our team is also gloved and masked up. People can view the property one person at a time whilst others waiting outside the property practice social distancing.

Normal group auctions have also banned since Covid-19, although online auctions are still acceptable. This is unprecedented given Melbourne is deemed the auction capital. Pretty much if someone wants to sell a property in Melbourne, and it's a good property in an inner suburb, it would usually go to auction. So Warwick, does this mean most properties for sale are being sold privately?

Warwick

Yes. So what we have seen over the last two weeks is that most properties that were up for auction before Covid-19 have now either had their auction brought forward (prior to the rules coming into place) or - if that wasn't possible - have been converted to private sale. So, there are not very many properties up for auction now. There are a couple of real estate agencies out there who are doing online auctions. We haven’t done any virtual auctions ourselves. This kind of a technology has been around for a while, however there hasn't really been a lot of uptake and none of the major real estate agencies use this system anymore. They did try them a couple of years ago, but it didn't really work so they stopped. But since Covid-19, I'd say all of those companies are rushing to look at the best technology for their services. And there could be a change in how auctions are handled moving forward because we won’t have a choice. So with auctions that were usually held on a Saturday throughout Melbourne might now be held on a Thursday night or held online.

People generally don't like change, but when people are forced to change it can actually bring good things.

In the last month, most real estate agencies started doing digital contracts, so you don’t have to physical sign anything – it’s all just digital signatures now. Luckily this came in before Covid-19 happened. I would envisage by the end of Covid-19, every agency will be doing digital contracts and you won't be seeing paper ones anymore.

Melanie

Absolutely. How are you seeing the property market out there? Obviously you’re still looking for properties for people to buy and looking for purchasers. You’ve also got a few property sales on the go too.

Warwick

We have seen the number of inquiries for properties significantly drop over the last week. And as a result of the new ‘stay at home’ policy, people are not venturing out as much. But people who are in need of a place to live are still out there. This has resulted in somewhat of a downturn in the market. Not a lot of properties are expected to come on the market right now. Most owners, I would suggest, would be waiting for restrictions to ease before they decide to put their property up for sale. And pretty much every property that was going to be auctioned over the next 3 months is now up for what they call ‘off-market’ (so, still for sale but not advertised on the internet because that costs money). We’re getting emails every day from real estate agencies letting us know all the off-market properties they have for sale. Their properties will be offered around until they can actually hit the market properly.

Melanie

So it sounds like there are still some good properties out there, we just need to know where to look. And, as an Advocate, you have access to all those properties I’m sure?

Warwick

Yes - there are still quite a lot of properties and there's always people who need to move or need to sell for whatever reason. So, there are still good properties coming on the market. There is obviously a lower supply of them, but good properties nonetheless.

Melanie

Absolutely. We’ve have had a number of property owners who were looking to sell their property just before COVID-19 hit Australia. What would your advice be to them now?

Warwick

We've pretty much recommended to everybody who was thinking of selling to put their plans on hold for the moment, unless they're under financial hardship and they definitely need to sell. We just need to see what’s going happen. We're keeping up to date with how the market is progressing and how many buyers are out there and speaking with real estate agents daily. Some properties are still selling quite well. Others, like the apartment market, have had a significant drop in interest, which is predominantly driven by nervous first-time buyers not wanting to buy because of concern about employment or financial matters. Buyers are a little more cautious now. So, for now, our advice is to hold off selling for perhaps a couple of months. If you’re thinking of selling, it’s always good to plan well ahead because the timing of when you put your property on the market is very important in these times. This is where we can help, to ensure the sale campaign is managed properly.

Melanie

What are your best tips for people selling right now?

Warwick

We are doing a lot of research at the moment and vetting real estate agents very thoroughly before we select them to sell a property for our client. In the past, if we were helping a client sell a property, we’d get 2 or 3 agents through the property and we’d help the client select an agent by vetting their suggested marketing campaign and thoughts on auction. However, that’s just not going happen at the moment. Now, we are going to the real estate agent and asking more pertinent questions (given the current market) – like, how many buyers have you got? Who are your legitimate buyers? If they don’t have any legitimate buyers, we will put them on a very short sale authority of five days (as opposed to 60 days). We might need to loop through different sale agents because Covid-19 has changed the way we do things. The old way of selling properties is gone. Hopefully, it will come back soon, but it's a whole new game right now. So, if you think about putting your property on the market, choosing the right agent is essential and also not getting locked into one particular agent for an extended period time is crucial.

Melanie

As a buyer's advocate, do you still have clients looking for property?

Warwick

Yes, we do have clients looking to buy property. It's interesting – some existing clients looking to purchase property have put things on hold because they're uncertain about what's going on. Yet other clients are coming to us and wanting to buy now, however are restricted because of social distancing and staying home advice and perhaps a general shift in priorities. So we’re still on the ground looking for properties. At the moment we’re helping our clients find a property without them having to view five properties in a day and not liking any of them.

Melanie

Do you think it would be a good time to grab a bargain investment property right now? And what would you say to people who are in the position to be able to buy right now?

Warwick

In the coming month or two, there are going to be some very good properties for sale. This is both fortunate (for buyers) and unfortunate (for sellers) because people will be forced to sell their properties due to Covid-19, which is sad. To answer your question though, yes - there will be there good buying opportunity. There might be a drop in the market value of properties for a set amount of time, which we are already seeing with some properties, especially upmarket properties. If you have cash and you've got the ability, definitely the next two months you’ll see properties for sale at prices that they haven’t been at for a while.

Melanie

How would you predict the market moving forward? I know there’s no crystal ball, but we’re always asked to gaze into it.

Warwick

It's very hard to predict the market. I think we will probably see a drop in times like these, and certainly a low amount of stock right now. I also think there will be a lot of people experiencing financial hardship who will be waiting to sell their property when the market does come back on, so we might see an oversupply of properties down the track. I don’t think we’ll see the prices of properties rise until we have a higher demand of supply, which I don't see happening this year. So, I'd say there's going to be good buying this year. Next year, it’s hard to predict but hopefully we’re back to normal.

The city market will still perform. And when I talk about in the ‘city’, I'm referring to properties from the CBD out about 20 kilometers. Over the years, the market has had its ups and downs, but it's always bounced back because good properties will always be good properties – even if there’s a small supply of good properties, they will always do well. I think off-the-plan properties and properties built within the last 5 or 10 years will have major setbacks and will probably not recover within the next 10 years. I predict there will be a lot of people defaulting on their settlements. The new ones will be more susceptible.

We already saw last year, where lending tightening up for the Chinese market, a huge amount of defaults coming through from Chinese buyers. I think we’re going to see a similar thing for Australian purchasers now. It's going to be a very interesting for the off-the-plan market. It's never performed well throughout my whole 25 years in real estate, but I suggest the heat will get to it during Covid-19 and it probably won’t recover for a very long time.

Melanie

Absolutely right. So, for those getting their house ready for sale, do you still recommend engaging tradespeople to help prepare it, or is it too risky right now during Covid-19?

Warwick

It’s definitely not too risky. It’s very important to speak with tradespeople beforehand to check what health and safety procedures they have in place and ensure their team is social distancing and doing everything properly. Then you can engage a tradesperson.

But if you have spare time and you need to get some things done before you sell your property, you should do it now (either yourself or with a tradesperson).There's not much else to do at the moment given stay at home laws. So getting all those things sorted before the market does turn is advisable. Because, as we know with Melbourne, when it does go up a notch you want to be there and be ready for when that happens.

Melanie

Do you think Covid-19 will affect the Asian buyers in Australia?

Warwick

Yes. We've already had a big impact with Asian buyers due to the fact their lending requirements have changed. China changed the rules on how much money they could take out and also stamp duty rules have changed. So they now have to pay an absolute truckload of land tax, which has taken a lot of Asian buyers out of the market. When Covid-19 first started, we thought we might see a resurgence of Asian buyers wanting to buy in Australia because they might perceive it as more of a safer environment. But until we see the economic impact of Covid-19 on China and Asia and the rest of the world, Asian buyers are generally not buying anything from these other countries anymore. So the knock-on effect of the global economy is going to be a big factor in what other nationalities are doing in Australia going forward.

Melanie

Will the market value of properties drop or will we more so see a lack of competition preventing those runaway prices we’ve seen in the past that vendors always hope for?

Warwick

I think some sections of the market will drop somewhat. The areas where there is a high supply of product will drop. Obviously, supply and demand works the same way every time. But I agree that those properties that are a little bit special will still perform quite well and still have some competition around them.

Melanie

Heading up the rental department of Domain & Co. has been like no other for the last couple of weeks. We're now working much harder for less money, with management rates dropping on properties not being leased as quickly or at the same market rate as they would have before Covid-19. Negotiating financial hardship with tenants and landlords has also been a difficult and challenging time for our team. Most property managers aren't equipped to deal with these sorts of negotiations. Obviously, everyone's going through their own personal issues due to COVID-19 but seeing the financial distress from both tenants and landlords has been quite tolling.

So far, the government hasn't put anything clear in place with regards to residential rents, which has been really hard because the public mentality is that all landlords with a property investment is rich. Unfortunately, that is not true. A lot of our landlords are mum and dad investors. They're doing their best to keep the property afloat and the majority of them are negatively geared, which means they've got to put their own money into the property. The rent they have coming in on the property doesn't cover the costs that are going out. So Covid-19 has created a bit of a divide between the landlord and the tenant and that leaves the property management company in the middle trying to work it out.

The government is saying almost every week they're going to talk about real estate during Covid-19, but they never really come to any decisions (except to whack out a 6 month moratorium on evictions with no clear guidelines around it). But it’s important to remember a moratorium doesn't mean you can't pay your rent. That's certainly been a very interesting one to deal with. We've seen some great generosity from a lot of our landlords, supporting their tenants who are going through legitimate hardship. I say ‘legitimate’ hardship because the word on the street is to simply ask your landlord for a rent reduction, even if you're not suffering hardship, which is both not in the spirit and not acceptable.

We are currently getting our tenants to fill out an application form if they are claiming financial hardship and they need to supply us with proof of their statements (such as bank statements or letters from their employers confirming a drop in income or hours). The more evidence a tenant can supply to the landlord, the more likely they are to get some assistance. We have to assess those like any other application to make sure they actually are in financial hardship. We've been escalating all of our tenant financial hardship requests to Warwick. He's got a very good financial head on his shoulders and, as a Director of Domain & Co, we felt that dealing with the hardship cases needed to be escalated to a senior member of our team. After completion of all paperwork, it's then up to the landlord to decide if they are able to help and what that might look like. The government has also put in place some assistance for tenants and employees. There is now the Job Keeper program and rent assist, so there is some financial assistance happening from the government.

Warwick, what are some of the ways landlords have been able to assist with offering some rental relief for tenants who are going through legitimate hardship?

Warwick

Tenancy financial hardship is a very complicated process and every situation is different. And as you said, some people's interpretation of hardship is very different to other peoples. Somebody who is in absolutely no hardship at all might feel like their hardship is the same as somebody who has lost everything. It's actually a very mentally draining process going through all this and talking with everybody and trying to negotiate with landlords and tenants. Initially, we were explaining to tenants that our offer of a rent reduction was not free money, but rather a rent deferral - so it’s money they would have to pay back later. For example, we have been offering anywhere between $25 a week to $100 a week discounts for tenants experiencing financial hardship, based over a 3 month period. So, at the 2.5 month mark, we'll reassess the tenants hardship because some government benefits might have started kicking in by then. Our goal is to make sure our landlords are getting as much income as they can get, whilst also supporting their tenants in financial hardship.

Melanie

And it has been up to the individual landlord how much they can afford to support their tenant, because as I mentioned before, a lot of landlords just don't have the ability to offer any rent relief themselves.

Warwick

Yes, that's a hard conversation to have with people. Saying to a tenant “I understand you are experiencing hardship, but unfortunately your landlord has also lost their job and they don't have any money either”. Landlords still have to pay their land tax and things like that, so it does make it complicated. We have to look at all different avenues to try and resolve each matter. The biggest hurdle we're facing is with our tenants who are not Australian residents. If a tenant is on a working visa or school visa and working in hospitality, they might have lost their jobs. And if you are not an Australian resident, you get no benefits. So these guys are pretty much cut off from any form of income. Their families are overseas in lockdown and also struggling financially. It’s a very complicated and messy situation.

Melanie

And that's one of the amazing things to think about, is that there's no-one is untouched by Covid-19 in the world.

Fortunately, landlords do have the option of putting their mortgage on hold for 3 to 6 months. If you’re a landlord in financial hardship and you haven’t spoken with your financial adviser or bank yet, do so now. But remember, this is not a non-payment of your mortgage. It just gets added to your mortgage at the end and you effectively end up paying interest on your interest. So, in the long run of your mortgage, you will have more to pay. I think that's really important for tenants to understand too, because the thought process out there is that if landlords can have their mortgages put on hold then why should I pay the rent if they don't have to pay their mortgage? But landlords certainly do have to pay their mortgage because whilst deferring your mortgage might be a bit of a relief now, it does need to be paid down the track. For every month of deferred mortgage payments, you’ll notice the loan amount owing increase. So you’re effectively accruing interest on the interest, which is not the best scenario, but it's the only scenario for some people. It’s really important tenants understand all this and that just because they're in hardship doesn’t mean their landlord isn’t either. We are seeing quite a few people now breaking leases. A lot of tenants are moving back home with their parents or moving in with friends, so they don’t have to pay or defer rent.

Landlord insurance is now almost impossible to obtain due to Covid-19, with most saying they are no longer putting coverage in place. We are currently sourcing out new insurance providers. So if a tenant declares hardship after they've moved in, we just need to manage each case individually. It’s essentially up to the owner to really decide on where they're at with their finances and how they can offer relief to a tenant.

Working in property management during COVID-19 is definitely tough. We're doing our very best to work around it to get tenants into properties because an empty property is no good for any property owner. As I mentioned before, we have virtual tours in place now so a lot of people are looking at those tours first, which is really great for us because they are really investigating the properties a lot more before they view in person. In the past, we'd have an open-for-inspection and someone would come to view the property and might get there and say “I don't like the area” or “I thought it had three bedrooms but it only has two”. So people are really investigating the properties now before they get there to ensure it meets their requirements.

We are finding properties are slower to rent, particularly since the new ‘stay at home’ advice. But there are still people who need to move. A property might have been sold so the tenant needs to move out. A tenant might also need to downsize and pay less rent. So, there are still people out there looking to rent properties. We are still trying to lease properties every week, however we are being a little more creative in how we're offering them. So, a property that may have been on the market for $600 a week, we might be offering it for $550 per week for the first 3 months and up to $600 after that. We are trying all different things to try and get a win-win for both the landlord and the tenant where the tenant gets a little bit of rent relief for the first few months and the landlord gets a good tenant, which is always better than a vacant property.

Anthony, you asked a question around the thoughts on electronic application forms, electronic condition reports, electronic lease's etc. Do we really need to meet who is living in these properties anymore? Oh, absolutely. I don't think we can get away from the customer service of our role, which is something we've got to be careful of. I think in these times, we've become so digital we do all of those things electronic anyway. Pre-COVID-19, we would meet the tenants at our office for our tenant welcome meeting which goes for about an hour (to go through the ins and outs, help them be a good tenant and also teach them how we can help as their property ages). It's great to be able to have that customer service level. And, let's face it – this property is their home, it’s not just a house. So we want to have that personal element in our client facing relationships. It's much nicer when everybody is friendly with each other and we don't want it to turn 100% electronic. Electronic is great, it makes it easy. Electronic leases are certainly easier but there is more to it than that. Lots of people say to me, why do you love real estate? It's actually not the real estate I love, it’s the people – looking after the tenants, looking after the landlords, looking after the trades. It's all managing people. That's so important. So I hope that answers your question.

We had a very strong recommendation from the Real Estate Institute of Victoria late this afternoon to stop having open-for-inspections on properties that are tenanted and only have open-for-inspections on properties that are empty. So we have been moving towards that. But from tonight, certainly we'll be having no more open-for-inspections on properties that are tenanted. So usually properties would be advertised for 3 or 4 weeks before a tenant vacated. Now, we’ll advertise 1 week out so people can view the virtual tours. We'll still be working our database and letting people know about properties that come and sending our database the virtual tour. This will hopefully help the landlords save some money on advertising as well.

Another big thing that has come up in the rental space during Covid-19 is Air B&B properties. We have seen most Air B&B properties lose all of their bookings, and the foreseeable future of bookings is very bleak. We just saw New South Wales put out a press release saying that if you're caught going to an Air B&B over Easter, you will be fined. So, they are really strict on all that kind of stuff. As a result, we’ve been picking up some Air B&B properties and finding long term tenants for them until the situation changes, which could be a year away. Do you have comment on that Warwick?

Warwick

The Air B&B market has really gone. It has been successful for a lot of people for a lot of time, but the movement is just not there now. It's going to be a bit of a tough slog for those with Air B&B property owners who chose to keep those properties. Our advice is, if you can, to empty the furniture out and put them back on the market for 12 months with a property management company like ours and see how you go.

Melanie

Does the moratorium on evictions cover all of Victoria? Yes. It covers the whole of Australia. That was a government announcement. And what a week and a half that was until he came back out and said that doesn't mean you don't pay your rent. We had a lot of people saying, “Great! We can't be kicked out for 6 months so we don’t have to pay rent!” But that’s not how it works. You still need to pay your rent.

Every state and territory in Australia have their own laws around the moratorium. They're trying to figure out how to do it, which is a massive task. They've kind of worked out a code of conduct for commercial tenancies, which they say is more pressing because of the massive effect of those rentals on businesses. I think the government is working on an order, because they're going to have to take something from somewhere else to get something. It’s very complicated. There's lots of discussions about things in government right now.

What positives have we seen come from COVID-19? I guess from my point of view, I would say the team pulling together and working together. Most of our team are now working from home, but we still need some people in the office because we still need keys to be picked up and dropped off. I've been so proud of our team and how they've handled the whole situation. Also, to see the generosity coming from our landlords and tenants has been really fantastic as well.

Do you have anything to add to that Warwick?

Warwick

No, I agree. The generosity has been great. We've got landlords asking us to create hampers for their tenants, full of disinfectants and so forth. But if I could source disinfectant for me, I'll get it for you too!

I don’t think any office will go back to the way they were. You’ll never get the same again. Particularly now we're all set up digitally. We run all our meetings through Zoom now and they work really well. So it's going give us a lot more flexibility in the future. And people do enjoy working from home.

Melanie

It is nice to be able to have the opportunity to work from home. The main positive I see coming out of this is that it will force a technology push within the industry that has probably been lagging, which will help us do our jobs more efficiently, The big negative I’ve found is that I can’t hug people! I love my hugs and my team know that I love to hug.

Diana's has asked about what’s happening with court hearings. They are now been done over the phone, but we’re pretty lucky in our office that we have very minimal VCAT hearings. Luckily, we can count on one hand the amount of VCAT hearings we have attended.

I think having the right advice before making any decisions about property right now is more important than ever before. Would you agree with that Warwick?

Warwick

Definitely. It's so unpredictable what's going to happen going forward. Having somebody with you who has so much more experience and understanding and connections is paramount to get through Covid-19. If you do need to sell your property, you want to get the absolute highest price and make sure you're not persuaded into taking any price. And if you want to buy a property, you want to buy at the right price. As advocates, our ability to negotiate now has never been higher because we have the power. So, yes – it’s definitely it's a good time to be a property adviser. And for our clients, having that resource available to them is a benefit.

Melanie

Absolutely. So, we're here for you. If you do have any questions, whether it be a small or a large - even if you think it's a silly question, no question is silly for us. We're always happy to have a chat about property, so feel free to keep asking. My email address is available through our website or our Facebook page as well. Don’t forget to tune in every Thursday at 8pm to see our new video.

Feel free to lean on us for support too, to guide you through these uncertain times.

I want to thank you Warwick for spending time with us tonight. I'm glad our live Facebook video has worked. We've got through it, so we might be posting a few more of these over time. This information has been so important, I think, for property owners and investors across Melbourne and Australia as a whole.

Thanks for joining us, guys. I'd love to see your comments and please like and subscribe to our social channels on Facebook and YouTube. I welcome any suggestions for new topics too.

Join my mailing list. Never miss an update
  • White Facebook Icon
  • White YouTube Icon
  • LinkedIn - White Circle

© 2020 by Melanie Dennis - 0416 218 003 - Melbourne, Australia