What We’ve Learnt (so far..) in the Pandemic about the Property MarketSeptember 7, 2020
The Australian property market started strong at the start of the year, with prices rising to 14.5% in Sydney as compared to last year. It was then when everyone was still healthy, and the unemployment rate was relatively low. Then, the pandemic happened, and it’s as if the world turned a different direction altogether.
Industries greatly affected by Covid-19 plummeted. Those in the tourism and commerce sector took the hardest hit due to the restrictions implemented on travel. Most areas placed strict quarantine zones to prevent the spread of the virus and resulted in closures and loss of jobs. We’re not just talking about a few people, it’s in the tens of thousands.
While Australia is indeed at the brink of a recession, the property market—including real estate and construction services—remain to be a silver lining between the gloomy clouds of the rest of the economy. Pricing has remained constant throughout 2020 and is projected to remain stable until the end of the year. But why? How come the property market remained strong in the face of a pandemic?
The September Slope
When the virus outbreak started and began wreaking havoc around the world, some experts believed and predicted that the property market would meet a cliff sometime in September. However, due to the country’s stacked resources from the previous year’s savings and a strong close, the government was able to layout countermeasures to ease the blow for its people and economy.
On our previous blog, we explained why people should panic amidst the pandemic. With the Australian government deciding to taper back JobKeepr gradually, instead of abruptly cutting it, the September slope replaced the impending cliff. 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. These grants and programs did their purpose in supporting the plight of both property buyers and sellers. Now, people are more comfortable in making transactions close to their regular prices, avoiding significant markdowns and distress sales.
Predictions and Projections: 2020 and Onwards
In general, the situation of the Australian property market is currently can be primarily attributed to the preparedness of the country as a whole to face a global crisis such as a pandemic. But here’s what the Reserve Bank of Australia (RBA) has to say about the economy moving forward: ‘…(the Australian economy) will need “considerable” policy support for some time.’ But the RBA also predicted the economy would commence in the second quarter of 202, which it is doing right now. Inevitably, if the Covid-19 situation does not improve in the coming months, we could see some drastic numbers for the gross domestic product (GDP).
There are three (3) economic scenarios provided by the RBA; baseline, upside and downside. In its baseline case, the RBA forecasts that unemployment will then recover steadily from 10% in Q2 2020 to 6.5% in Q2 2022.
‘There is considerable uncertainty over the path from here,’ Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said in a speech in Sydney. ‘This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households,’ he added. This situation also concerns those people who are considering buying a new property or building a new house or planning renovations. ‘The Reserve Bank will maintain the current policies to keep borrowing costs low and credit available and stand ready to do more as the circumstances warrant,’ Debelle said.
Debelle said Australia’s A$2 trillion ($1.4 trillion) economy had performed somewhat better in the June quarter than earlier feared. However, he pointed out that declines in both GDP and hours worked were historically large. This number highlights the importance of fiscal stimulus packages for both businesses and individuals to survive through the pandemic. Simply put, the economy lies on a tight, delicate balance between government and/or bank support systems and consumers’ willingness to spend to keep the economy afloat.
On one of our previous blogs, we also discussed the HomeBuilder program and how it can directly impact the property buyer’s decision-making, which is a perfect example of the delicate balance mentioned earlier. To recap, the HomeBuilder grant allows eligible owner-occupiers and first home buyers a construction subsidy of $25,000. The money can only be used on buying a new home or for a major renovation of an existing house.
‘$25,000 to support those families and Australians whose dream was to build their homes or to do that big renovation,’ Prime Minister Scott Morrison announced last June. ‘We’re here to tell them that we’re going to keep the dream alive for them,’ he added. The grant also aims to create jobs and projects to kick-start activity in the housing sector.
What We’ve Learnt So Far…
What does this mean for the property market, and what have we learned with the trend? One thing is that the Australian government is making sure the industry is getting the long-end of the stick by providing financial support where it’s needed to keep the economy alive.
Second, the financial sector—including local banks and the RBA—is doing their share of carrying the load for spreading monetary assistance despite high unemployment rates.
Third, the threat of Covid-19 and its direct effect on the industry is evident and is certainly concerning. Still, looking at the initial predictions versus the actual situation, the property market remains resilient.
Indeed, the restrictions brought about by the quarantines had drastically affected business and their employees negatively, not to mention the actual health concerns the pandemic brings. Having a prepared economy to withstand the early blunt force of the outbreak sure made trade and commerce more manageable in the long run. Perhaps that’s the key learning there is: ‘preparing for the unknown, investing in the bigger picture, taking risks when necessary, and acquiring proper support’.
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