The increased spending is seen as a preparation to secure competitiveness after the coronavirus pandemic
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How will coronavirus affect property prices?
It’s one of the most Googled questions since the coronavirus and COVID-19 outbreak: how will coronavirus affect house prices?
The bottom line is it will be negative - prices will go down. People, up until now, have been talking about the property market developing a bit of momentum, with the interest cuts we had last year and the easing in credit conditions.
But coronavirus has changed the story for 2020.
Rate cuts and stimulus packages can only do so much
The Reserve Bank cut rates soon after news broke of the developing coronavirus outbreak. On its own, that’s positive for the housing market (meaning prices stabilise or go up).
But the reason the bank is cutting is coronavirus is negatively impacting the economy as a whole – there’s no escaping that fact. Yes, the government has released its stimulus package and there may be more fiscal stimulus on the way, but there are limits to what any government can do. There will be negative effects on employment. It will be a short, sharp shock to the economy.
I fully expect a strong rebound by 2021 but in the short term, it will hurt. There are sectors in the economy where people will lose jobs and it’s fair to say coronavirus is generating uncertainty more broadly in the community and, in turn, in the economy.
In the housing market, the bottom line is there will be a pullback by buyers and that will take momentum out of the market, and we could see some price falls.
The other element is you can look at what it’s done to other asset prices. Yes, interest rates are lower but other assets, notably equities, are being hit.
For a lot of people with wealth tied up in the share market, their wealth has been diminished. So capacity for many people to use that wealth to buy into the housing market has been reduced.
I’m looking to buy. What do I need to know?
In this environment, buyers who are in very secure jobs are actually in an improved position because the overall market is weaker. Coronavirus will take out a group of buyers – those adopting a wait-and-see approach or who are simply unable to buy due to reduced income.
But there’s another group of buyers: those who are in jobs but who face uncertainty about how coronavirus will affect their pay or whether they will keep their job at all.
Many of these types of buyers will be taken out of the housing market for now.
I’m looking to sell. What do I need to know?
If you’re a seller, you need to appreciate things are going to be weaker. Those would-be sellers who have flexibility will be able to defer and that could cushion prices falls.
There will still be people who need to sell for whatever reason. The turnover will decline but there will still be properties coming into the market.
I’m a property investor. What do I need to know?
The market has been getting more difficult for the investor. The market in, for example, Sydney is oversupplied at the moment and there’s already been some downward pressure on rents. Yes, investors can benefit somewhat from the decline in rates but that benefit is offset by declining rents.
Then, along comes coronavirus.
The weakness it is causing in the economy will accentuate the downward pressure on rents in the short term and that’s something investors need to be cognisant of.
If prices come down, investors could be in a better position to buy (to create or add to an existing property portfolio) but that weakness in rents is a real factor – it has been for some time and is unlikely to go away any time soon.
No matter your state, the overall picture is broadly the same
From state to state, each of the markets are doing slightly different things but the broad point would apply across all markets. Coronavirus is everywhere. Its impacts on the property market will be everywhere too.
The Western Australian market has been weak for some time, and rents have fallen fairly drastically for quite a while now. There appear to be signs it could be stabilising but coronavirus won’t exactly encourage that.
The Melbourne market has been strong and the vacancy rates aren’t as high, but there’s no doubt coronavirus will increase caution among many buyers and encourage a lot of sellers to defer.
A rebound in 2021
2020 will, in many ways, be a hard year for the economy. Talk of a recession is growing and while the big companies may not lay off a lot of people, a lot of small businesses are facing the prospect of low to no revenue. They may have no choice.
The financial capacity of small and medium sized business will be harshly affected. If you’re a restaurant and nobody is coming in, you may have no option but to reduce staff or close. The stimulus package is well targeted but there’s no stimulus package in the world that could stop some of these effects happening.
The RBA has talked about a rebound in the second half of this year. Hopefully they are right but I expect one at least by 2021. Either way, it’s important to remember the rebound will happen.
People will recover. People will go back to restaurants. People will go back to football games. Things will eventually bounce back. Things will go back to normal eventually - but there will be some business casualties along the way.