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COVID-19 & PROPERTY FAQ



After a successful COVID-19 & Property Webinar, we have received further questions on certain aspects of the impact this pandemic will have on the Property Market in Australia.


Q: Will Meridian Australia continue to be active in the market during this time? Will there be bargains?


Yes, we will remain very active during this period. We have a medium-long term approach to the property market with our clients. While we remain confident in the short-term prospects of our identified properties and markets; the short-term is not our focus.


Now is a good time to be securing an investment property, in the right market. There are strong opportunities available.

For those expecting ‘bargains’ and heavy discounting, we are not seeing signs of distress in fundamentally supported property markets. There are likely to be bargains and discounted property options that come up over the coming months, however, these are likely to be within markets that contain high risk.


The analysis will always drive our focus, and our eyes are always open for opportunities. We are currently in negotiation with multiple vendors, within our targeted suburbs. We will keep you updated on this front.


Q: If I were to purchase an investment property, would there be tenants in the market?


Now, as was the case before COVID-19, and will remain the case for the long term: market and property selection will minimise vacancy risk.


Suburb selection involves ensuring that there is a diverse range of employment supporting that suburb; with multiple employment hubs all within close proximity.


A high-quality suburb for investment will have a low vacancy rate (sub 2%) and a low level of residential construction occurring, to ensure the low vacancy rate can remain that way.

Property selection involves securing the right type of property for the prevailing demographic in the suburb, where rental demand will remain high. Selecting a high-quality property will ensure that a strong tenant can be targeted.


Finally, local property managers should be interviewed, to determine the level of rental demand in the suburb; what is their success at the moment, what is their strategy.


Q: What will happen to property prices if the unemployment rate increases significantly say to 10%?


Many economists are no longer expecting the unemployment rate to reach 10%. This was a real threat before the recent ‘job keeper’ stimulus package. The government’s wage subsidy scheme will keep up to 6 million workers in the most affected parts of the economy in a job.


For there to be a significant impact on national property values a 10% unemployment rate would need to be long-term.


Australia is expected to see a ‘short and sharp rise’ in unemployment, which is expected to peak in the June quarter and return to below 7% before the end of the calendar year, as shutdowns are unwound.


There will be areas in which property values are significantly impacted; however, these are likely to be limited to those heavily reliant on the most directly impacted employment sectors.

Q: Will vacancy rates increase with unemployment?


Yes, in certain markets we expect the vacancy rates to increase, in the short term and particularly those that have a large number of property owners using Airbnb.


Travel restrictions have lead to many Airbnb owners to transfer their properties into the long-term tenancy market.


Overall we do not expect to see an increase in city-level vacancies, except Hobart, who has a heavy use of Airbnb, but also have a very low vacancy rate currently.


Q: If my tenant advises they can’t pay their rent, what should I do?


It’s difficult to provide an individual answer for this, as it depends on the actual state your property is in and the individual circumstance.


Much of the government stimulus and assistance from lenders is to assist landlords put in this position. The increased social benefits provided to individuals impacted is to assist them to pay their rent. It's best to work with your property manager on a solution for you and your tenant.


From an economic standpoint, Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, recently provided some clarity around some of the FAQ about the Government stimulus and how it's being paid for.


Q: Why the need for massive government support?


Since COVID-19 became a global pandemic in March 2020 and countries progressively ramped up social distancing policies, governments and central banks have swung into action to help economies weather this storm. This is necessary.


Such support is unlikely to stop a recession or depression-like contraction in the economy.


However, it’s needed to minimise the collateral or second-round impacts of the shutdowns and enable the economy to start up again when the threat from the virus abates.


Australia has announced three fiscal stimulus tranches now totaling around $200bn or 10% of GDP, which is nearly double that of the GFC stimulus.

Other countries have also announced massive stimulus with the US just signing off on one package worth $2 trillion (USD) and now talking of another.


The policy response is now of a magnitude that it’s starting to tip the risk scales against some sort of long depression/recession.


Q: Can we afford such a surge in the deficit and debt?


The hit to the economy from the shutdowns could be 10-15% of GDP. This requires a similarly sized stimulus program to off-set it, otherwise, we risk immeasurable collateral damage to the economy and people’s lives. This will cause an even bigger budget deficit.

Australia’s public debt is also relatively low. Net public debt as a share of GDP is a quarter of what it is in the US. So, Australia has a far greater scope to do fiscal stimulus than other countries [1].



These measures are to avoid a deep depression. When the dust settles Australia will be left with higher net public debt at maybe around 45-50% of GDP.


It will be the price we paid to (hopefully) minimise the loss of life from COVID-19 and at the same time minimise the hit to people’s livelihoods from the shutdown.

This may necessitate forgoing the next round of tax cuts or a new deficit levy and it may put a burden on future generations as wartime spending did.


Q: Could anti-virals or a vaccine improve the outlook?


Yes, there is now a massive global effort on this front and some drugs are promising. So, it’s not out the question that there is a breakthrough enabling a quicker relaxation of shutdowns.


I hope you found these FAQ useful for your education as a property investor in the current landscape. If you had any questions feel free to book in a call with me here.


To stay up-to-date make sure you join our Weekly Property Market Pulse Newsletter here.

Adam Duffy - Partner at Meridian Australia

P: (02) 9939 3249

E: adam@meridianaustralia.com.au


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References

[1] IMF, AMP Capital


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