Could the Coronavirus affect the Australian property market?

The Coronavirus brings with it a number of challenges. One being a shortage of toot paper at Woolies.

Another being the huge question mark over the head of the property market in Australia.

Property prices across the country have been in recovery-mode since January this year and the market has been recovering much faster than expected, with Sydney and Melbourne now growing annually at double-digit rates and values across five capital cities reaching a record high in February.

The question on everyone in the real estate industry’s lips now is

“Could the global spread of COVID-19 derail the re-bounding market?”

The Australian Financial Review reported that the coronavirus was a “big and rising risk to the property market outlook,” while Federal Treasurer Josh Frydenberg has already warned that the coronavirus will have a significant impact on the Australian economy.

That’s because our economy is heavily dependent on the spending of Chinese tourists and students, as well as on Chinese export revenue.

It’s important to acknowledge the potential challenges faced by this virus – but it’s also vitally important that we look at the risk carefully – for if we don’t, we’ll end up panic buying things we don’t need for reasons we don’t understand (roll of double strength toilet paper anyone?)

In order to sort out fact from fiction and help guide buyers and sellers, we’ve compiled a list of potential outcomes that need to be considered when faced with so many unknown as presented by the COVID-19 virus.

Potential positive impacts:

  1. During times of economic uncertainty, real estate has always been a touchstone – a ‘safe’ investment. As share markets and the price of the dollar fluctuates, we could see a surge in property sales, demand for property and increased prices.
    Lending practices have also loosened up which means buyers are surging back into the market. Adam McMahon of Dignam Real Estate explains that low-interest rates and better lending conditions are bringing them back in droves.

2.  The growing impact of the coronavirus has forced the RBA to cut the official interest rate to a record low of 0.5 percent and there could be more to come. This is good news for borrowers as it means they can pay back their loans quicker.

Adam says the lowered rates have generated high consumer confidence in the buying market in the Northern Illawarra area. “The biggest factor bar the low interest rates is supply and demand. There are very low stock levels and buyer demand is (currently) ferocious.”

This ferocity means those houses on the market in our local area are being snapped up within only a few days on the market, rather than weeks. 

3. As seen after the SARS outbreak, China may decide to implement a nation-wide stimulus – this will provide a boost to Australia’s economy as iron ore and coal exports, key inputs in steel manufacturing, will grow rapidly and prices will rise. 

Potential negative impacts

1. Low wage growth or higher unemployment means there is a risk that property prices could become unaffordable. The RBA’s rate cuts are being implemented to counteract this. A falling Australian dollar is often a sign of a slowing global economy. This is because the Australian dollar is closely linked to commodity price movements, which in turn are often driven by how the Chinese economy is performing. When the RBA cuts interest rates, this also pushes the Australian dollar lower.

The Australian dollar acts as a “shock absorber” for the Australian economy. A lower dollar makes Australian exports, such as rural and resource exports, tourism and education, and other professional services more competitive internationally.

A lower Australian dollar also makes imports more expensive, which makes Australian-made products and services relatively cheaper. This results in people switching to domestically produced goods and services (for example, a Gold Coast holiday becomes more attractive compared to a trip to Asia). 

2. Less Chinese nationals coming into the country means less demand for rental accommodation and less chance Chinese nationals have to invest in Australia. If the Chinese government decide to restrict the flow of funds out of China (to protect their economy), it could mean a restriction on Chinese investors spending in Australia.

The bottom line:

At the moment, there are a lot of predictions and anticipated risks – but the reality is, we don’t yet understand the full implications of this virus.

“The Illawarra northern suburbs have always had strong buyer demand from Sydney buyers,” explains Adam. He feels confident the market in our area will stay buoyant despite the global threat. “Virus or not, the market is tipped to go up by 10% growth in 2020.”

The property market started it’s recovery phase in August/September 2019 and in 2020, it’s showing no signs yet of slowing down.

Dignam Real Estate has reported a 24.5% increase in ‘buyer inquiries’ compared to this time last year while the number of open home attendees has increased by 38%.

The Northern Illawarra is therefore fiercely following the nationwide trend of a fast bounce back.

For any help or advice on how we can help you on your real estate journey, contact our elite Team on 4267 5377 today.

Posted on 7 Mar, 2020