WEALTH HUB JOURNAL

Effect of Coronavirus on Australian Property Investment: The Good, The Bad, The Ugly

It is an undisputed fact that the economic contractions being faced by the world due to the COVID-19 outbreak are the largest and the fastest in human history, and Australia isn’t immune. This outbreak has wreaked havoc on lives, economies, and employment, and all of these factors directly or indirectly affect the property market.

At the very beginning, the government put in measures to protect jobs and income vis-à-vis stimulus, banks paused mortgage repayments while the landlords deferred rents to a point, and there’s a moratorium on evictions. Yet, the pandemic and the economic shutdowns have had significant effects on our property market.

Let’s briefly talk about these effects:

The Good…

Soon after the outbreak, the Reserve Bank of Australia (RBA) reduced the interest rates in Australia, solely because of the negative impact of coronavirus on the economy as a whole. This cut in interest rates means that there is a cheap line of credit available throughout the crisis. So, households and property investors that have stable and secure incomes will take advantage of the low-interest rates and invest in a long-term deal; either as a property owner (occupier) or investor.

In other words, the pandemic has increased the volatility of the share market; this will make some investors consider property investment as an alternative secure investment. As it stands in the property market, buyers are buying, sellers are selling, and in turn, prices are falling.

But you can decide to be a non-discretionary buyer by taking the opportunities the market is presenting at the moment — that is, if your income goal is a long-term capital growth.

The Bad…

There is no doubt that the pandemic has taken a group of buyers out of the property market, like those who have jobs but aren’t sure how secure they are, those whose income has been reduced or have been laid off, and discretionary buyers who prefer to wait and see what the end result of the pandemic will be. The interpretation of this analysis is that the market is being oversupplied at the moment, and that has caused a downward movement of rents (obeying the law of supply).

The fall in rents has made the cut in interest rates somewhat irrelevant, as what you gain in interest rate, you lose in rent. Similarly, a higher unemployment rate (of about 7.1% presently) caused by the pandemic has contributed to property in Australia becoming less affordable for intended buyers. Also, fewer immigrants and tourists caused by the travel ban has resulted in less demand for investment properties, rental accommodations, and buying of property.

The Ugly…

The Australian Dream — “…home ownership can lead to a better life and is also an expression of success and security” — is becoming shattered. A lot of people have their wealth tied up in the share market, and that wealth has been diminished (equities too have been hit hard by this pandemic), thereby reducing their capacity to buy into the property market. If the pandemic is not curbed soon enough, the unemployment rate may reach double figures, and this will increase debt-servicing problems, leading to forced sales and a sharp fall in property prices.

In conclusion, all the negative effects outlined will likely result in two things: property prices falling and property sales declining. However, if you find the right property at the right price and it fits in perfectly into your long-term capital growth strategy, don’t wait for the pandemic to end — INVEST! We might have to live with this pandemic for another couple of months, if not years.

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