The Property Market Update
What is going to happen to the property market?
This is now a regular question and answering it is not easy. The impacts of the Covid-19 virus are there to be seen, however there are hidden problems that could become a bigger concern.
The seen impacts are the shutdown of many industries and the rise in unemployment. With Australia’s unemployment rate forecast to reach 10%….there will be fall out.
This is certainly going to have a negative effect on property prices. Borrowers under mortgage stress from reduced hours or lost employment in combination with the employed feeling insecure within their jobs. The result likely to be an increase in stock with a drop in demand.
The size of the fallout will be masked for another few months, whilst banks accommodate distressed borrowers with the six month repayment holiday. When this ends, borrowers unable to resume or obtain work will be faced with the tough decision about trying to hold on to or selling their home into a low confidence, soft market.
It is possible the impact may not be as bad as the key indices suggest. Industries severely hit, such as tourism, hospitality and retail, generally employ younger people who are not as likely to have mortgages. This means the unemployment figures may not be reflected in the mortgage belt.
Hospitality and retail are also likely to bounce back quicker, as the economy opens up once restrictions are lifted. Let’s hope this is the case. It could mean the unemployment number is more of a blip than a longer term issue to be resolved.
The bigger issue emerging is the property industry, it is the biggest employer in Australia. It needs a boost in order for Australia to have a speedy economic recovery. The current signs are not positive. Builders I have spoken to are struggling, they are already down on a terrible previous year. Any boost in retail and hospitality could be overwhelmed by the fall out of this sector, if it is not addressed.
In conjunction, Australia’s GDP growth is ALSO heavily dependent on net migration. The ramification to the migration from Covid-19 is yet to be seen. Will Covid-19 mean we will have less immigration? If it is, it will be a big negative to Australia’s recovery and house prices.
Australia’s successful response may mean we can attract more talent to our shores, or it could mean the high quality immigrants just bunker down for years to come rather than make the move. This is an unknown, not to be underestimated and should be monitored in the coming years.
I think it is reasonable to conclude that property price increases are highly unlikely in the short term. They may hold, however they will probably contract. The question is by how much? I have seen 15% discounts from land developers recently. Developers are generally ahead of the curve of the populous and where the market is heading.
However with this adversity comes opportunity. Decreasing prices in combination with a lack of housing being constructed will ultimately lead to better yields. Brave clients with stable jobs in good financial positions will have a massive chance to get ahead. In coming months they will likely be able to buy property at reduced prices we have not seen for decades. If they do, when the pandemic clears, they will most likely end up of a with a windfall.
They can take advantage of record low interest rates versus relatively strong yields and use positively geared properties to pay down home mortgage debt and set themselves up for additional retirement income.
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