Phase 2 (starting now through end 2021) – the coming recession.

 

For people who didn’t live through the early 80’s or early 90’s recessions, this is going to be a huge shock. For the short-medium term Australia is entering a terrible and deep recession. Unemployment will go to at least 10% and possibly higher. But unlike all previous recessions, this one was caused by a health crisis, not underlying structural problems in the economy. So we are all hoping that rapid Government action will allow the economy to get back to where it was much more quickly. The current predictions from the Reserve Bank see unemployment back down to about 6.5% by the end of next year. Still very ugly, but less so than previous recessions which have tended to cast a shadow for up to a decade.

 

So, while the sudden impacts of COVID19 have impacted particular suburbs and price points, the Phase 2 recession will ironically be more mild and predictable in its impact once the market has stabilised itself over the next 6 months. Rental arrears will be a up a little but not too much as people over time move to properties they can afford if their circumstances have changed. Vacancy rates will remain higher, at least until the overseas students return, but even so, not drastically. We have gone up from 1.6% to about 2.8% vacancy in Melbourne during Phase 1 – that is still an almost balanced market and less than it was at other times in history. So most properties will get let in the normal 2 – 5wk period. Rent levels will also be largely stable and will recover a lot in Red and Yellow Zone areas within 6 – 12 months – faster if the students return. We do believe higher end rents will remain lower for longer, however, so the Navy Zone will probably have to accept 5 to 25% lower rent for the next few years.

 

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