The unexpected economic consequences arising from the current COVID-19 outbreak are highlighting the advantage of long-term investing as a strategy to minimise risks amid turbulent times.
As global economies roll out measures to mitigate the risks from the spread of the virus, consumer sentiment is likely to become more muted. There are also threats of a recession, which could result in loss of jobs. There is no doubt that the property market will also take a fair share of the struggle — but should this worry investors in the space?
Unemployment rate — property's Achilles' heel?
Shane Oliver, chief economist at AMP Capital, said the impact of the COVID-19 outbreak to Australia's unemployment rate might substantially influence where property prices will go.
"Our base case is for a rise in unemployment to around 7.5% which is likely to drive a 5% or so dip in prices ahead of a property market recovery into next year as the economy bounces back and pent up demand is unleashed again helped by ultra-low interest rates," he said in a think piece.
Looking at the previous downturns, property, as an asset class, has fared well against adverse economic shocks compared to other asset classes like stocks. For instance, the 1987 stock market crash resulted in an increase in home prices as investors went after properties. However, in several instances when a market shock pushed joblessness up, property values recorded declines. Oliver said this makes unemployment the "Achilles' heel" of the property market.
"The government and the Reserve Bank of Australia's measures to help struggling businesses and households through the coronavirus shutdown should help in preventing a really big rise in unemployment," Oliver said.
Also read: State Govts' Billion-Dollar Boosts
Easing buying activity
However, one thing is certain — property transactions will likely moderate in the coming months due to social distancing and isolation measures.
Eliza Owen, CoreLogic head of residential research, said the outbreak may lead to postponed dwelling purchases, as housing is an expensive, high-commitment purchase decision.
"If monetary and fiscal stimulus can adequately support business and household income amid the slowdown, then the next few months could see a sharp contraction in sales volumes, but not necessarily dwelling values," Owen said.
If prices do fall as a result of COVID-19, there is no need to panic, said Helen Collier-Kogtevs, founder of Real Wealth Australia.
"This potential recession, unlike others, could happen quickly due to the speed at which the world is reacting to the virus and causing us to shut down. I believe that we have about six months of 'crazy' before things start to settle down. And as quickly as markets fall, they will rise. Long term, good quality property always present solid returns," she said.
Taking the long-term perspective
Michael Yardney, director of Metropole Property Strategist, said it is crucial to take a long-term perspective in times like this and analyse property fundamentals.
In an analysis, he said Australia's property fundamentals remain ideal given the record-low interest rates, strong first-home buyer presence, high immigration, and the low supply of homes.
"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," he said.
Still, the potential impact of the coronavirus on the housing market presents an opportunity for Australians to buy or invest.
"There is no doubt there will be opportunities in the market for those who are willing to go against the crowd and when they look back in a year's time and definitely in five or 10 years' time, they will remember the unprecedented events of 2020 as a great buying opportunity for property," he said.
The case of Sydney
Mark Foy, principal of Belle Property Surry Hills, said property has always been a safe bet for people amid uncertainties.
"During these turbulent times, it's very hard to pick the bottom of the market. The most important thing is that you're in the market for the long term," he said.
Foy said inner-city Sydney is one of the less volatile markets that have consistently recorded strong gains over the last 30 years.
"The market is very tightly held in Sydney inner-city. Stock levels have been low for the last three years for a reason, because it's harder for people to refinance and buy more property, which has coincided with the royal enquiry for banking lending. It's harder for people to get loans and longer terms, so people will be holding property for longer," he said.
The federal government's move to close Australia's borders could further protect inner-city Sydney from the potential impacts of COVID-19, said Nick Viner, director of Buyer's Domain.
"I concede that some vendors are nervous and there are opportunities for particular buyer types where you might be paying $20,000 less than a month ago or so. But my overall feel is that the resilience of Sydney property has come to the fore," Viner said.
While other industries bear the brunt of the outbreak, Viner said the property market is going to perform better than average over the long-term.
"And the expectation is when things return, they'll return in a big way," he said.