The unexpected economic consequences of the current COVID-19 outbreak highlight the benefit of long-term investment as a strategy for minimizing risk during turbulent times.
As global economies take steps to mitigate the risk of spreading the virus, consumer sentiment is likely to become more subdued. There are also threats of recession, which could result in the loss of jobs. There is no doubt that the real estate market will also take a fair share of the struggle – but should this worry space investors?
Unemployment rate – Achilles heel of real estate?
Shane Oliver, chief economist at AMP Capital, said that the impact of the COVID-19 epidemic on the unemployment rate in Australia could significantly influence the destination of labor prices. immovable.
"Our base scenario is for an increase in unemployment to around 7.5%, which should cause prices to drop by around 5% before the property market picks up next year, so that the economy is rebounding and pent-up demand is unleashed – again helped by ultra-low interest rates, "he said in a position paper.
Looking at the previous downturns, property, as an asset class, has withstood adverse economic shocks well compared to other asset classes like stocks. For example, the 1987 stock market crash caused house prices to rise as investors searched for properties. However, in several cases, when a market shock pushed unemployment up, property values ??fell. Oliver said it makes unemployment the "Achilles heel" of the housing market.
"The government and the Reserve Bank of Australia's measures to help struggling businesses and households through the closure of the coronavirus should help prevent a very large increase in unemployment," said Oliver.
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Flexibility of purchasing activity
One thing is certain, however: real estate transactions are likely to moderate in the coming months due to social distancing and isolation measures.
Eliza Owen, head of residential research at CoreLogic, said that the epidemic could lead to postponed housing purchases, since housing is an expensive and high commitment purchase decision.
"If the monetary and fiscal stimulus measures can adequately support the income of businesses and households in the midst of the slowdown, then the coming months could see a sharp contraction in sales volumes, but not necessarily in housing values", said Owen.
If prices fall as a result of COVID-19, there is no need to panic, said Helen Collier-Kogtevs, founder of Real Wealth Australia.
"This potential recession, unlike others, could happen quickly due to the speed with which the world reacts to the virus and forces us to stop. I think we have about six months of" crazy "Before things start to go and as fast as the markets go down, they will go up. In the long run, good quality goods always have solid returns," she said.
Adopt a long-term perspective
Michael Yardney, director of Metropole Property Strategist, said that it was crucial to take a long term perspective at times like this and analyze the fundamentals of property.
In one analysis, he said Australian real estate fundamentals remain ideal given record interest rates, the strong presence of first-time home buyers, high immigration and low supply. housing.
"After each global disruption, there has been an increase in property prices, and there is no reason to suggest that it will be any different because the fundamentals are still solid", a- he declared.
Yet the potential impact of the coronavirus on the housing market presents an opportunity for Australians to buy or invest.
"There is no doubt that there will be opportunities in the market for those who are ready to go against the crowd and when they look back in a year and certainly in five or 10 years they will will remember the unprecedented events of 2020 as a great buying opportunity for the property, "he said.
The case of Sydney
Mark Foy, director of Belle Property Surry Hills, said that the property has always been a safe bet for people in uncertainty.
"In these turbulent times, it is very difficult to choose the bottom of the market. The most important thing is that you are in the market for the long term," he said.
Foy said that downtown Sydney is one of the least volatile markets that have consistently posted strong gains over the past 30 years.
"The market is very tight in downtown Sydney. Stock levels have been low for three years for a reason because it is more difficult for people to refinance and buy more goods, which coincides with the royal inquiry for bank loans. It is more difficult for people to get loans and longer durations, so people will hold property longer, "he said. said.
The federal government's decision to close Australia's borders could further protect downtown Sydney from the potential impacts of COVID-19, said Nick Viner, director of Buyer’s Domain.
"I concede that some sellers are nervous and that there are opportunities for types of individual buyers where you could pay $ 20,000 less than about a month ago. But my general feeling is that the resilience of Sydney property has come to the fore, "says Viner.
While other industries are bearing the brunt of the epidemic, Viner said the housing market will outperform the long-term average.
"And the expectation is that when things come back, they will come back in a big way," he said.