Like the rest of the world, the team at Your Investment Property has been processing and responding to the COVID-19 threat. This is a shifting crisis and one that evolves daily as more information unfolds and new data comes to light.
There’s no denying this is a very unusual time – one that is unfamiliar and untested. It’s natural to be cautious and concerned. When you’re unsure what to do next, the best course of action is to reach out for expert help, and that’s exactly what we’ve compiled for you here.
Between them, the people who give us their insights over the following pages have collectively accumulated dozens and dozens of years of property investing experience.
We have lived through recessions, the GFC, mining booms and busts, interest rates that nudged 20%, and everything in between. While none of these scenarios are quite like the one we have upon us now, they do reveal a few key learnings.
At Your Investment Property magazine, it’s always our mission to educate and inform. This is window in time that is unlikely to be repeated. While it would seem the quarantine period will probably be longer than first anticipated, the stimulus response is also going to be significantly greater.
So, what do the experts think about the evolving COVID-19 situation, where it’s headed, and how investors can remain calm and not give in to fear-based decisions?
Cate Bakos
Chair, Real Estate Buyers Agents Association of Australia (REBAA)
“Things got serious for most property owners in our nation on Friday 13th of March. The mention of a pandemic seemed to jolt us into a fearful reaction in those first few days.
“Two camps of buyers are now apparent: those who are fearful and happy to sit it out in a ‘wait and see’ capacity, and those who are desperate and feeling the ‘buy now or wait a long time’ vibe. Vendors may be jittery, but plenty of buyers are bridging the money gap between their pre- and post-COVID-19 price expectations.
“With the RBA’s most recent rate cut, combined with our federal government’s stimulus handouts, we must anticipate that when we recover from COVID19 (and we will recover), our bounce-back could be much sharper than that of the last downturn.
“For possibly the first time in the history of mankind, 7.8 billion people are all focused on a common goal. When we all come out of our cocoons in the second half of 2020, there will be an enormous release of pent-up demand”
“Borrowing capacity will be significantly higher and, combined with limited available stock as vendors postpone plans to sell, this cocktail could spell a heady set of price gains for our capital cities. Not to mention the cash flow implication for investors: the recent consecutive rate cuts will hold plenty of investors’ portfolios in cash flow positive territory, easing the immediate need to liquidate investment property if hard times strike household income.
“The obvious questions remain: how long will this last, and how will we navigate through this with our unemployment figures remaining relatively steady? There is no debate that COVID-19 will hurt many households and businesses financially, but we do need to remember that, like all shocking global events, there will be a recovery.
“It’s how we deal with all of these moving parts that will defi ne us, and our government, in economic history."
Ben Kingsley
Chair, Property Investors Council of Australia (PICA)
“At the time of writing, I’m buoyed by several recent developments.
“First is the RBA Governor’s ‘whatever is necessary’/‘nothing is off the table’ approach in the bank’s efforts to keep the money markets liquid and credit as cheap as possible to ensure businesses, jobs and incomes remain viable during this temporary period.
“Together with this is the bank’s medium-term signalling re the cash rate remaining at 0.25% until they reach their targets of an unemployment rate of 4.5% and infl ation within the 2–3% range.
“Second is the banks announcing that they will offer both business and personal home loan customers repayment holidays on their mortgages for six months, reducing the risk of business closures and mortgage defaults, and therefore reducing the risk of any significant price corrections in the property market.
“Prior to this escalated health crisis, underlying demand for property was solid and supply was constrained. Once we get out the other side of this health issue, I expect this demand to increase significantly, as the property market fundamentals are sound.
“Remember that one should never speculate on property, like any investment. So, if you’re buying for the longer term, I believe you will be well rewarded by your actions today."
Shane Oliver
Chief economist, AMP Capital
"Coronavirus is having an enormous impact on the way we live. While first and foremost a health crisis, the fallout for the economy is also significant. We expect at least two negative quarters of GDP growth in the March and June quarters, with the risk that the September quarter may also be negative. The contraction could be deep, because big chunks of the economy will be largely shut – tourism, travel and entertainment, with a severe flow-on to parts of retailing.
"Past large share market falls have had a mixed impact on property prices. The 50% share market crash in 1987 actually boosted home prices as investors switched from shares to property. But the key is what happens to unemployment, as this often forces sales and crimps demand.
“Back in 1987 the economy remained strong and unemployment fell, but the recessions of the early 1980s and early 1990s saw falls in average national capital city home prices of 8.7% and 6.2% respectively as unemployment rose. The GFC share market fall of 55% also saw a 7.6% drop in home prices, even though it wasn’t a recession, because unemployment rose from 4% to nearly 6%.
“Auction clearance rates and sales are showing some signs of slowing this month. This may reflect an increasing desire on the part of buyers and sellers to put property transactions on hold to avoid being exposed to the virus. Social distancing policies will only intensify this, and this may flatten price gains.
“A relatively short recession that sees unemployment rise to around 7.5% would likely only set prices back around 5% or so, then prices would bounce back. A deeper recession risks tripping up the underlying vulnerability of the housing market, which highlights the need for the government and the RBA to minimise the fallout from COVID-19 shutdowns in terms of businesses and jobs.”
Peter Koulizos
Chair, Property Investment Professionals of Australia (PIPA)
“Unfortunately, the COVID-19 situation will get worse before it gets better. Australia hasn’t hit its peak contamination period yet, but when it does, the situation will slowly get better, as is evidenced by what is happening in China and South Korea.
“In relation to property and property investors, there is no need to panic. As has happened in past crises such as the recession of the 1990s, the GFC, SARS and swine flu, the economy and share market took a hit for a relatively short period of time and then bounced back.
“In regard to property, the effect of these crises on Australian residential property was negligible. In the depression of the late 1920s, however, the economy, share market and property all took a huge hit, but as the COVID-19 crisis won’t last as long as the depression did, the impact won’t be as great.
The key in this situation is cash flow. Many of us property investors are asset rich but cash flow poor, but in these di cult times cash flow is critical. Hopefully you have some cashed stashed away for a rainy day (because the rainy day is here). If you don’t have access to some cash, it would be worthwhile to speak to your bank about arranging a line of credit loan.
“In summary – stay calm! Rash decisions made at these times can often be regretted in the future."
Eliza Owen
Head of research Australia, CoreLogic
"The coronavirus outbreak clearly presents some downside risk for the Australian housing market, but ultimately, the impact remains highly uncertain. New information and policy responses are unfolding daily, making it impossible to provide a reasonable forecast of capital growth.
“Some added context, however, is remembering the fundamentals of the property market, and the idiosyncrasies of a pandemic-led downturn.
“Property is less volatile and slower to respond to market shocks than equities; it is a consumption good and is tied to fundamentals of employment opportunity and income growth.
“We have lived through recessions, the GFC, mining booms and busts, interest rates that have nudged 20%, and everything in between”
“Transaction activity is likely to be impacted more than market values. As consumer confidence reduces and labour markets are disrupted, more Australians are likely to put high commitment decisions on hold until there is more certainty around the economy, jobs and household finances.
“Additionally, stimulus measures, including emergency-level monetary policy settings and a surge in fiscal spending, should help to cushion the impact of reduced business activity, but a recession in the first half of 2020 looks likely.
“The current high level of household debt amplifies the risk of unemployment for housing market conditions. However, areas severely impacted by social distancing would be less resilient than others in rebounding from the coronavirus pandemic.
“Given the idiosyncrasies of the current downturn, there are likely to be parts of Australia where housing demand, including rental demand, will fall more sharply than others. These include areas where workers cannot perform their jobs remotely and may have to sacrifi ce income if social distancing is enforced, where there is a high incidence of casual employment, and where there is a high concentration of employment in aff ected industries.
“Our views and research on the market outcomes in relation to the coronavirus will continue to evolve as more information comes to light.”
Michael Yardney
Director, Metropole Property Strategists
“One of the major lessons I’ve learned from previous downturns is the importance of taking a long-term perspective, which always outsmarts short-term reactive thinking. It’s really property fundamentals that matter and drive our markets in the long term. Things like demographics, supply and demand, affordability, availability of finance, and local economic trends.
“Of course, we all know the old saying: be fearful when others are greedy and be greedy when others are fearful... But it’s normal human nature to fi nd it di cult to buy your new home or investment property when everyone else is running around thinking the world is coming to an end.
“However, now that I have invested through eight property cycles, I have found that it is exactly these conditions that present the best opportunity. That means now is the time to get prepared to take advantage of the opportunities that the market will offer.
“After each global disruption there has been an increase in property prices, and there is no reason to suggest this will be any different, as the fundamentals are still strong – such as our record low interest rates, record fi rst home buyer numbers, high immigration (high demand) and slowdown in construction (low supply)."
Simon Pressley
Head of property market research, Propertyology
“We maintain our position from December 2019, when we described Australian property market fundamentals as the best they have been in more than a decade.
“COVID-19 is a virus, not a structural weakness. It essentially means that the ‘pause button’ will be pressed for several months, while everyone works together to kill this germ. While property transaction volumes will understandably decrease during the quarantine, people will still buy, sell and rent property. Shelter is an essential commodity.
“Generally speaking, the pause button will be pressed on property prices. Record-low interest rates will underpin that. Yes, there will be significant disruption for everyone for several months. But this is a known cause with a known solution and a finite time frame.
“For possibly the first time in the history of mankind, 7.8 billion people are all focused on a common goal. When we all come out of our cocoons in the second half of 2020, there will be an enormous release of pent-up demand, coupled with the biggest collective volume of stimulus ever seen, in Australia and globally.
“The other side of the cocoon is the same incredibly tight housing supply and low interest rate environment as when we entered the cocoon. Frankly, I’m bullish about what lies ahead!
“For those with organised finances, the quarantine period off ers a small ‘window in time’ buying opportunity that is bookended by the solid start to 2020 and when the masses burst out of those cocoons.”
