COVID-19 – Impacts to the property market

It is early days with the COVID-19 pandemic sweeping through the global economy. A number of our clients have reached out seeking our view on the likely impacts to the property market. While we don’t have a crystal ball, the following is a point summary of our appreciation of the situation and outcomes that may happen.

– The property market is “on pause” and will likely decline as investors become more cautious about the direction of the economy. All major impacts will likely results in a two year slowing of the economy, but this may take longer for price recovery. Some sectors will rebound quickly, such as places suitable for distribution and storage, and there may be some resurgence in local manufacturing for national security.

– Some fundamentals are in place to support real estate activity. In essence, interest rates are very low and foreseeably low for the next few years (until the target inflation rate is achieved), credit availability is good, and population growth has been strong (although immigration may be impacted).

– Those investors and businesses with capital will be looking to deploy capital into distressed assets. This would likely occur after companies return to regular operation.

– The impacts to retail will be substantial. There is a real risk that some retail shops/ businesses will not survive the downturn in trade given the tough retail market prior to COVID 19.

– Stock volumes for sales across all asset classes has decreased. Volumes will likely continue to decrease until the full impact of this pandemic is known.

– High existing household debt levels could force sales if debt serviceability changes due to unemployment and loss of rental income.

– Retail and commercial property vacancies will increase which will likely decrease the book value of these assets and return to investors.

– REIT earnings and dividends will be decreased for this financial year.

– Off-the-plan residential sales will be impacted, which could force the withdrawal of new developments.

– Approved “shovel ready” developments may not proceed until the market depth is clearly understood.

– The Federal Government announced a Nil Monetary Threshold for Foreign Investment. This means the flow of international capital will slow until the world recovers from the pandemic.

– There could be a decrease in residential property values (particularly at the prestige end) as the competitiveness from international buyers drys up).

– Falling GDP and rising unemployment will hurt the overall Australian market, however, it’s too early to predict what impacts will occur. If it’s not dealt with this year and unemployment is high and people can’t get support like mortgage relief, etc. there could be a big downturn.

– The sharp decline in international travel has impacted tourism and its flow on impacts extend not just to hotels, houses and Airbnb but also to cafes restaurants and tour operations.

– Fundamentals for social housing and housing affordability will be one area that will increase, as too with ‘build to rent’ as an annuity.

– Investor sectors will focus on back to basics – supermarkets /storage/ affordable accommodation both residential and working.

– In the commercial market, there would be a move to flexible rental terms and building uses with the surge in working from home.

– One scenario is for a quick rebound if the virus is controlled and business activity is allowed to return to normal.

– A more probable scenario could be for a drawn-out downturn if the virus and business control measures (and impact on GDP, immigration, employment/unemployment and share market) persist.

For more information contact info@hillpda.com