Updated: Jan 13
With lots of ‘bloodshed’ in share-market over last few days, what is in store for our property markets given the coronavirus issues? Is crash imminent? Is Australia staring into recession? These are the questions on the mind of many investors in light of the economic woes globally and the uncertainty surrounding the coronavirus.
Coronavirus is playing havoc to the businesses and consumer confidence and they might get worse before they get better, and this is certainly very depressing.
However, back to my original question, what it means for the property market?
There are certainly serious short-term economic challenges, but please do not make long term decisions based on the short term information. One really needs to look from the lens of fundamentals, namely supply and demand.
With doom and gloom, there lies an opportunity.
Despite of RBA’s efforts to avoid, it is likely that Australia’s economy will fall into a technical recession in the first half of 2020. But given a likely recovery that follows in the second half of this year, this will be deemed as a short-term economic growth disruption as compared to the blown-out recession that Australia last experienced early 1990s.
The outcomes for our economy, jobs growth and unemployment figures will certainly depend upon the effectiveness of the simulation package government is proposing. The virus that will affect our economy for 6 weeks or 6 months will come and go in a relatively short time frame, compared to long term time frame for property investments.
“Be fearful when others are greedy and be greedy when others are fearful.”
– Warren Buffett
Thus, home buyers and long term investors who have job security, should take advantage of any short term downturn in our property markets to set themselves up for the next phase of the property cycle.
Let’s take a quick look at 6 of the most important underlying fundamentals which support our property markets in the medium to long term.
1. Population Growth
Australia’s population is growing by around 360 thousand people per annum, meaning we need to build around 170 to 180 thousand new dwellings each year to accommodate all the new households.
2. Declining housing supply
The oversupply of dwellings in many Australian locations is now dwindling and there are very few new large projects on the drawing board. Considering it takes long to build new estates or large apartment complexes, we are going to experience an undersupply of well-located properties in our capital cities in the next year or two.
3. Low-interest rates and cheap money
The prevailing low-interest-rate environment is making it cheaper to own a home, either as an owner-occupier or investor. In fact, it has never been cheaper for investors to own a property with the out-of-pocket expenses being the lowest they have been for decades. Moreover, the low inflation rate will ensure that it will be a lower interest rate period for a while.
4. Increase in renters
Primarily due to affordability issues as well as deliberate lifestyle choices, roughly 40% of our population will be renters as opposed to owning the home.
5. First Home Buyers
First Home Buyers are back in the market, partly due to the encouraging government’s new scheme and also because of cheap finance and rising property values. If first home buyers wait to get into the market, they’re finding the market moving faster than they can save, so they are joining the bandwagon quickly.
6. Smaller households
Sure many people live in a multigenerational household, but pretty soon millennials will make up one-third of the property market and their households tend, in general, to be smaller as are the households of the booming 65+ year old demographic. More one and two people households means that, moving forward, we will need more dwellings for the same number of people.
In summary, undoubtedly, our economy is facing challenges, and the share market is very volatile, but our property markets are underpinned by the fact that almost three-quarters of property owners are homeowners who are there for long term. The banking system is strong and stable.
As we start to become more concerned about the economic impact of the deadly virus, it is likely that there will be a flight to quality assets, and bricks and mortar have always stood the test of time.
The coronavirus outbreak has spooked markets across the world and there is NO doubt that it will have a significant global economic impact.
However, like all the other worldwide epidemics we’ve experienced this too shall pass.
Next steps: Should you want to learn how the author built his $5m balanced portfolio in 7 years, and aspire to own something similar, feel free to get in touch via email at email@example.com or book an appointment here.
Disclaimer: This article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.