How Mosaic Property Group is coping with COVID-19

We are very grateful our industry can maintain operations as an identified “essential service”. That perspective is particularly important given many other industries/businesses have been forced to shut down as a result of social distancing requirements. Our business is really strong at present because we have quite a number of projects under construction and we are very fortunate that the bulk are either sold out or close to it, so sales risk is quite low for us. And whilst we do have a few projects in the selling phase, we will continue to monitor those closely over the next few months. We had a strong start to the year with our first quarter the best we’ve ever had as a company from a sales perspective across all three core Mosaic markets in SEQ.

We are stringently monitoring settlement risk as we always do via maintaining close relationships with clients to make sure we understand who they are, their source of employment, their available equity and the lending environment. There’s a lot of comparison to the GFC but whilst enormous in its impact so far, this is a very different situation. It’s far more significant and it happened too quickly to predict. The GFC was a breakdown in liquidity and a failure of the banking system via extreme exposure to residential backed mortgage securities, but our view is that the banks are in the best possible shape they’ve been in for a long time – certainly far better than they were 10 years ago from a capital ratio perspective. The banks seem to be willing to lend now, and they have unlimited backing from the RBA, along with the lowest cost to debt we have seen in human history. So as long as that environment continues our view is we will eventually bounce back.

Thinking about the stimulus measures, what does the industry need to keep it going?

The Federal Government has done a good job to maintain employment at a level where we think the Australian economy can recover a lot quicker than most western countries. There will certainly be some permanent job losses but generally I think employment will bounce back, albeit it will take some time before we get back to the levels we were at prior to the crisis. What we do for those people who have lost permanent employment is going to be critical.

Beyond that, any new stimulus must be about new job creation rather than maintenance of jobs in our view. I look at everyone that relies on our industry. If we take for example, architects and engineers, they will have been expecting projects to come on later this year that have now been put on hold. That creates a capacity lag and that will have an impact. We need infrastructure projects that the State Government can bring forward. We need “shovel ready” projects that will deliver benefits for a long period into our futures in SEQ. Bringing those forward will create jobs and then eventually also attract private investment.

The State Government also has a role to play in further incentives and there’s three ways they could assist. The first needs to be the expansion of the first home buyer grant to all new home purchases. The second needs to be a substantial discount or deferral on Infrastructure Charges, which improves the feasibility of projects and therefore encourages developers to move earlier with new project commencements. And the third is a refund on stamp duty. Industry needs to be incentivised to get back to full capacity, which will help replace jobs that were lost. These actions, along with a potential review of land tax in the short-term will have a substantial impact on what 2021 looks like and beyond for our industry.

There’s a lot of talk about the effect of COVID-19 on house prices. What’s your take?

Obviously, real estate sales have been restricted by social distancing and although we’ve seen movement to virtual platforms, people aren’t able to transact. I think until the worst of the fear and anxiety subsides, and people can actually start to see what the other side of the bridge looks like, real estate is likely to go into a period of hibernation.

Our view is Sydney and Melbourne will probably give back the gains they’ve made since May-June 2019, and house prices could easily go backwards by 12-15% in these markets over the next 6-9 months. But I think that will be off a small volume of transactions and not necessarily reflective of the broader market – but it’s likely to prompt a lot of negative discussion. I think SEQ will be far less affected because we just didn’t have the run up in prices. We’ve had really good absorption of supply over the last three years and we’re already coming into under supply; which will get worse when we emerge from this crisis as the projects that were to commence this year are delayed further. But there may be some challenges in the investment grade, mortgage belt areas of each region. I think infill product within 15kms of the CBD and the better parts of our coastal markets will hold up reasonably well.

If government is proactive in supporting industry to create jobs, then my view is that by mid-2021 price growth will return to all core SEQ markets. Obviously freely available and cheap credit as well as stimulus is critical to achieving that outcome. I think 2022 will be a very strong year for SEQ.

As an industry, we often talk about the importance of confidence. What can we be doing in a practical sense to help restore some buyer confidence coming out of this health crisis?

Industry leaders need to be communicating the facts about the current situation. People are looking for information that gives them some insight into what the market looks like and they need to hear that it’s going to be okay. We are going to be okay and we are going to come out the other side and be able to resume our normal life. And most of us are going to be able to resume our jobs or get a new one. We need to be talking about that. We have the lowest interest rates in the history of mankind and a substantial infrastructure program currently being delivered across SEQ. There is a massive amount of opportunity on the other side and most of that opportunity might start to turn up as early as next year. But I do think we’ll see a return, albeit constrained, to confidence in the last part of this year.

Two of the biggest contributing factors to confidence returning are people knowing that they’re able to get credit from the banks and maintaining employment. If you get those two things sorted, we are in a strong position.

Post crisis there is likely to be some pent-up demand. Once confidence returns, my view is that people will actually move quickly, because they’ve had a bit of a wake-up call. Coming out of this crisis, people will pursue what they’ve previously wanted to do and try to make the most of life. That desire will translate to the property market and that’s why I think we’ll have a sharp rebound from mid-2021, providing the industry gets the shot in the arm it needs in the short term and government must move quickly and be proactive in this regard.