Amid talk of recession, Australia’s property prices remain steady. Experts weigh in on the reasons.
Despite warnings by some forecasters that property prices could plunge by more than 30% due to coronavirus restrictions, residential property values in Australia are holding up steadily two months after the lockdown.
But experts believe the true test will emerge in October once government and bank subsidies run their course.
The current state of residential real estate
The most recent CoreLogic Home Value Index revealed that Australian residential real estate values have shown only marginal declines in April despite a sharp 40% drop in market activity.
According to experts, government stimulus packages, banks’ mortgage repayment holidays, and low interest rates have all played a crucial role in propping up prices.
Cameron Kusher, head of research at CoreLogic, stressed that while transactions were slowing, sales were still taking place and “it is more a case of ‘willing’ buyers and sellers transacting on property as opposed to distressed sales, which are typically seen during a recession.”
“It’s worth noting, while lenders have offered mortgage holidays in the past, including during the Global Financial Crisis in 2007, welfare payment increases and wage subsidies are not typically features of economic downturns,” he said.
Kusher added that this showed “COVID-19 is not a financial crisis but rather a health crisis,” which has led to business shutdowns and restricted people’s movements.
However, Michael Yardney, director at Metropole Property Strategists, told Your Investment Property that Australia’s housing market won’t be immune to the “coronavirus economic fallout,” but the impact on property prices “will depend on how long it will take to contain the virus.”
“Transaction levels will be significantly impacted over the next two to three months with discretionary sellers staying out of the market. It really makes no sense to put your property on the market for sale at this time unless you really need to,” he said.
No sign of panic
CoreLogic’s data also showed the number of property listings dropped about a quarter year-over-year.
According to experts, this indicates a challenging period for developers and sellers of residential real estate but also signifies a lack of distressed sales flooding the market.
“In other words, not many people are selling, because not many people have to sell,” said Eliza Owen, head of Australian research at CoreLogic.
Recent figures from property market analyst Domain Research House also showed that most Australian capital cities saw marginal changes in the proportion of urgent sales listings between February and mid-May, when the economic impact of the COVID-19 crisis was mostly felt.
Hobart registered the largest increase of distressed listings during the period, rising 0.3 percentage points. Adelaide and Sydney followed, posting a rise of 0.2 percentage points.
Figures from Melbourne and Darwin remained steady while Canberra’s and Brisbane’s numbers slightly dropped.
Future presents great opportunity
Amid talk of recession, Yardney sees big opportunities for investors who can see beyond the economic disruptions.
“To be a successful property investor you need to step back and take a big-picture view and refuse to be scared by the next boogeyman jumping out from behind the bushes,” he said.
“I see 2020 as being a year of great opportunity for strategic property investors. A year of opportunities for those who are willing and able to see the big picture.”
Yardney explained that, while there was a slowdown in the economy, he didn’t see a complete contraction.
“Sure, there are a lot of headwinds and challenges for our economy. However, despite these our economy is chugging along in second gear – not in reverse. We’re still creating jobs, our population is growing, and interest rates are likely to fall a little further this year,” he said.
“And if you take a long-term perspective, you’ll be able to spot and act on opportunities that arise in 2020 as many potential homebuyers and investors get scared by this boom year for fright.”