The September Slope: Why the Property Market Shouldn’t Panic in the PandemicAugust 25, 2020
The property market is currently facing one of its biggest challenges in the form of the COVID-19 pandemic. People feel hesitant to invest in any considerable expenses, such as buying a new property. There is the uncertainty of heading into a financial downfall that could lead their businesses and livelihood to ruin.
However, recent initiatives by the Australian government have shifted the country’s economic course. From a September cliff, the finance sector is now looking at a September slope in the next six months.
JobKeeper, a payment scheme that serves as a temporary subsidy for businesses affected by the pandemic, was set to get cut out in September. It also happens to coincide with mortgage loan holidays from Australian banks. Adding those two factors together caused pressure not only in the property sector but in the entire Australian economy as a whole.
The anxiety is quite understandable, considering businesses are coming from a system that supports the economy to a situation of no support whatsoever.
Setting up the September Slope
That changed when the Australian government decided that instead of abruptly cutting off JobKeeper, it will get tapered back gradually. Not only that, but the Australian Banking Association (ABA) announced that their member banks would extend mortgage freezes for people still affected by COVID-19 lockdowns.
This slope is the result of the Australian government having a considerably good fiscal position despite the pandemic. At the same time, Australian banks have their resources up and are willing to extend a helping hand to the people. There’s also the HomeBuilder stimulus package which aims to allow eligible owner-occupiers and first home buyers a construction subsidy of $25,000. This situation puts the Australians in an advantageous position to recover despite severe economic setbacks of a crippled workforce since the start of the year.
This JobKeeper payments extension will help prevent a spike of mortgagee sales and help stabilise property prices. In effect, it would also promote consumer and business confidence to strive forward as Australia and the rest of the world battle against the pandemic on all fronts.
Property Market’s Plight Amidst the Pandemic
Treasurer Josh Frydenberg said in the recent July Economic and Fiscal Update that the unemployment rate in Australia could peak at 9.25% by Christmas. That is roughly around 245,000 people out of work before the end of the year. Australia currently sits at an unemployment rate of 7.4% or a total of about 992,000 people, the highest in 22 years. Frydenberg also confirmed that the nation is facing its worst budget deficit since World War II.
Yet despite unemployment having a direct impact on the property market, hope lies ahead, especially with the JobKeeper extension and continued assistance from the finance sector.
Earlier in the year, property analysts predicted a plunge in Australian property prices by as much as 30% by the end of 2020 if COVID-19 restrictions remain. However, this prediction seems unlikely to happen, especially with government support in effect beyond September.
Without the JobKeeper and bank mortgage extensions, a September cliff was almost a guarantee. Analysts now recognise the potential of such stimulus packages in keeping property prices stable. For the time being, properties are expected to remain in its current pricing. There will be no price plunge in sight, at least in the foreseeable future.
According to Cate Bakos, President of Real Estate Buyers Agents Association of Australia (REBAA), the decrease in supply may provide a buffer in insulating property prices.
Major cities like Melbourne and Sydney have relatively low on supply such as property construction, design, and build which adds to the unlikelihood of a price-drop. It’s also noteworthy that this supply may change post-September as people are more likely to make property sales during that season.
“I think while this year has been very, very different to normal years, we’re still going to see vendors deciding to sell when the sun is out, the flowers are out, the birds are chirping and it’s less miserable,” Ms. Bako said.
“If we see an emergence of buyer activity in September/October that matches seller activity then the market will have more transactions but the supply/demand ratio will remain the same,” she added.
“If sellers outstrip buyers, then that will ease conditions for buyers, and when you have eased conditions you might have some price contraction or you’ll just find that purchasing is that bit easier because of less competition. You’re buying the property at the reserve price or the asking price as opposed to properties exceeding the reserve price.”
Because of earlier predictions of a fiscal cliff in September, buyers were expecting the market to get flooded by rush distressed sales with prices plunging to all-time lows. However, because of government initiatives such as the JobKeeper extension, distress sales were kept in check.
This is not to say that these kinds of transactions have not already taken place. Some property owners, who are fearful of losing their jobs and livelihood, took matters into their own hands and avoided mortgagee sale. It’s perfectly understandable, given the pandemic restrictions, unemployment situation, and earlier predictions of property analysts.
Without certainty of the market’s future, some owners may decide to sell while the prices are stable. But as mentioned earlier, it’s not entirely the case. Good thing that most property owners chose to hold out on making distress sales. This helped tremendously in keeping the Australian housing market price-drops to a minimum. As stated on our previous blog, only five (5) mortgagee listings in June out of more than 160,000 were recorded as signs of distressed sales.
Is Now the Right Time to Make a Property Investment?
As mentioned earlier, it’s quite understandable why people are skeptical in making such investments. Buying a property or starting a construction build and design project in the time of a pandemic certainly comes with unseen risks, but definitely merits its own rewards.
In the end, it falls on you—the buyer—to make the decision. It would be wise to weigh out your options and consider the current market price and the foreseeable property price. Take note that despite the pandemic, the country’s economy is headed not on a steep and scary cliff, but a steady and well-supported slope.
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