WEALTH HUB JOURNAL

How has the coronavirus affected the Australian property market?

When the news of the coronavirus pandemic began to spread in early March, the economy screeched to a halt. Restaurants shut their doors, events were canceled, and people were cooped up inside, per shelter-in-place orders. At the time, the Australian property market was seeing an uptick in demand, likely due to a combination of mortgage rate cuts and new capital gains tax measures introduced by the federal government.

Things were looking up—until they weren’t.

As of June 2020, the coronavirus is not yet over, but things have slowly started returning to normal. With that, the property market should begin to bounce back. But will it be able to? How much damage was done in the months since coronavirus struck? Will it be totally reversible?
When can we expect the market to bounce back? We’ll answer all those questions in this article.

How much damage did the coronavirus do to the Australian property market?

As a result of the pandemic, the Australian government implemented a nationwide lockdown, resulting in higher unemployment rates and, as a result, tenants struggling to meet rent deadlines. This has not been good for investors who rely on rent as their main source of income.

The government tried to mitigate the strain with a fiscal stimulus check. Additionally, the Reserve Bank of Australia (RBA) cut interest rates, helping alleviate the economic pressure on the Australian housing market. Yet, the uncertainty and fear surrounding the pandemic have caused a decline in property sales.

In May, the University of Melbourne Pursuit wrote, “New housing approvals (seasonally adjusted) have dropped and banks have been reluctant to make new loan commitments for home purchases. Affected by reduced profitability and increased risk, banks have been cautious in lending. The RBA’s cash rate, or the interest it charges on interbank loans, has been at a historic low of 0.25 percent since late March, reflecting the poor immediate economic outlook.” (Source)

In short, things weren’t, and still aren’t, looking pretty. But they can only go up from here, right?

Will the property market bounce back? When?

The ever-frustrating answer: it depends. The ability of the economy and the property market to bounce back from this slump will depend on how long social distancing lasts. When businesses reopen and people feel safe to return to normal life and economic activity resulting in the economy bouncing back.

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Source: The Australian

As for the property market, it will not only return to normalcy but soon we will see the restoration of buyer and investor confidence.

The RBA outlined a few possible scenarios in their Statement on Monetary Policy from May 2020:

“A plausible baseline scenario is that the various restrictions are progressively relaxed in the coming months and are mostly removed by the end of September, except for some restrictions such as international travel. If this occurs, and the spread of the virus in Australia remains limited, GDP growth is likely to turn around in the September quarter and the recovery would strengthen from there.

Stronger economic recovery is possible, however, if further gains in controlling the virus are achieved in the near term, allowing most containment measures to be phased out over the coming months and with more limited damage to business and household confidence and balance sheets. In this scenario, much of the near-term decline in GDP growth and the rise in the unemployment rate would be reversed over the next few years.”

Of course, there’s also the possibility that there will be a “second wave” of the virus, in which case an economic rebound would be delayed. We can hope for a late-2020 bounce-back at the earliest or an early-2021 bounce-back at the latest.

Wealth Hub Australia specializes in property investment, keeping a close eye on the markets, and more specifically on growth results and future development plans. This enables us to provide you with comprehensive advice, giving you a significant advantage within the property market. Get in touch with us today to achieve your financial and lifestyle potential!

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