This COVID-19 pandemic is in many ways dissimilar to the financial crisis’ of our past, such as the Global Financial Crisis. It's a health crisis, which has lead to Government restriction on movement and activity.
The Australian Government and those around the world have gone to extreme economic measures to minimize economic fallout and ensure that all society is prepared to bounce back when restrictions are unwound.
What do we know?
1. We know this is temporary.
The International Monetary Fund (IMF) came out with a recent prediction that states:
Australia’s GDP will fall by 6.7% this year (the worst fall since the Great Depression), but they predict it will rebound in 2021 to rise by 6.1% (the best result since 1984 and second-strongest for 50 years).
2. We know that our property markets have also entered a state of hibernation.
This will reduce the risk of any free-fall in values, which are typically caused by mass forced and distressed sales. Banks are providing support for homeowners and property investors with loan holidays or loan deferrals of up to 6 months.
3. We know that transaction volumes will be significantly lower over the coming months.
Property searches on Realestate.com and Domain.com.au have reduced. Individual valuation property reports produced by CoreLogic are down. Sales listings and auctions, as well as clearance rates, are down.
However, this does not mean we will see a significant reduction in property values. Whether prices reduce or increase over the coming months, this result will be based on a very low volume of sales and is therefore not very reliable as a measure.
Once shut-down measures are removed and normality returns, the underlying fundamentals of our economy, the minimal impact of COVID-19 on the majority of incomes, historic low-interest rates, and the reduced volume of sales over months, is likely to see a build-up in pent-up buyer demand.
Now is a very important time to focus on what we know, and not to speculate on what we don’t.
Property investment is about the long term, and the underlying fundamentals of strong markets remain solid.
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Adam Duffy - Partner at Meridian Australia
P: (02) 9939 3249