Property Market update:
The elephant in the room
What a start to 2020, firstly with the bushfires and now with the Coronavirus, yet the property market is proving to be extremely resilient with auction clearance rates still well in excess of 75%.
The coronavirus is all over the news at the moment. Besides the obvious serious health risks, the coronavirus could have serious impacts on the property market. The Australian property market is affected by the state of the Australian economy. So, if the economy is affected by the coronavirus, there will naturally be a flow-on effect but it is important to understand that the impacts could potentially be positive or negative.
Firstly, with regard to the economy, the economic impact of the declining tourist numbers is likely to be fairly widespread. That’s because our economy is heavily dependent on the spending of Chinese tourists and students, as well as on Chinese export revenue.
The latest PriceWaterhouseCoopers analysis forecasts that the Australian economy could suffer a combined $2.3 billion drop in revenue from fewer Chinese tourists and students visiting our shores.
China is also easily Australia’s largest export market, currently generating over $93 billion in annual revenue for the Australian economy! Any downturn in the Chinese economy due to the impacts of the coronavirus will hurt the demand for Australian commodity exports like iron ore and coal.
While the economic impacts are starting to be felt, the impact on the property market is yet to be fully understood. On the positive side people tend to view property as a fairly safe investment during economic uncertainty (especially compared to the share market). It is also worth noting that as a property investor you still receive rent (assuming the property is attractive to tenants), regardless of the direction of the market.
There is also a strong likelihood of further rate cuts by the Reserve Bank (RBA) making it even more attractive to buy property. As of the 3rd of March, the RBA did cuts rates by .25%, which was immediately passed on by the banks.
Now the negative impacts could be the affordability issue, particularly if unemployment increases which will have a negative impact on demand. Similarly less Chinese students would decrease rental demand as well as less overseas property buyers.
Unfortunately, no one has a crystal ball to be able to accurately predict the future. We can’t be sure how the coronavirus health crisis will pan out globally or for how long it will last. We also can’t be sure how it will affect the Australian economic outlook or our property market.
While it is important to regularly monitor Australian property news to stay informed of the latest market developments, make certain to take a balanced approach and look at the facts rather than speculate or get caught in the wave of negative media.
Our advice always remains that if you are in a position to buy now and you do your research, property can be a great investment regardless of what is happening within the current economic climate.