What’s ahead for our property markets in light of the corona virus issues?
Are they going to crash like the stock market has?
Is Australia going to fall into recession?
That’s a question on the mind of many investors in light of the economic woes around the world and the uncertainty surrounding the coronavirus.
Now I’m not downplaying the potential medical issues related to the coronavirus. In fact I’ve looked up the definition of a “pandemic” and this definitely is a “pandemic” even though our health authorities are not prepared to call it one.
Clearly many Australians will come in contact with the virus over the next couple of months, some people will suffer cold and flu like symptoms while some more frail members of the community will succumb to the germ. And that is tragic.
At the same time many businesses will suffer, particularly those in the hospitality industry, tourism, education and hose who supply chain from Southeast Asia will be affected.
But the biggest effect will be that to business and consumer confidence.
While we may not have a pandemic, we have an “infodemic” with the media including social media scaring us into buying toilet paper, buying bottled water (why? The virus doesn’t live in water) and even avoiding Chinese restaurants in suburban Australia
So back to my original question, what will this due to our property markets?
While this issue might have a short-term impact on our property markets, as consumers become less confident and sit on the sidelines for waiting things to become clear, I believe in a year from now and in particular five years from now and most certainly in 10 years from now, this pandemic will have had no influence on where Australian property market will end up and the value of your and my home is going to be.
Let’s look at a couple of reasons why…
1. Population growth
Australia’s population is growing by around 360,000 people per annum meaning we need to build around 170 to 180,000 new dwellings each year to accommodate all the new households.
2. Declining housing supply
The oversupply of dwellings in many Australian locations is now dwindling and there are very few new large projects on the drawing board.
Considering how long it takes to build new estate or large apartment complexes, I’m going to have an undersupply of well located properties in a B capital cities in the next year or two.
3. Interest rates are low and will go down further
The prevailing low interest rate environment is making it easier to owner home, either as a owner occupier or investor.
In fact it’s never been cheaper for investors to own a property with the “net outlay” – the out-of-pocket expenses – being the lowest they’ve been for decades considering how cheap finance is today.
4. Smaller households are becoming the norm
Sure many people live in multigenerational household, but pretty soon Millennials will make up one third of the property market and their household tend, in general, to be smaller as are the households of the booming 65+ year old demographic.
More one and two people households means we need more dwellings for the same number of people moving forward.
5. More renters
Soon 40% of our population will be renters, partly because of affordability issues but also because of lifestyle choices.
The government isn’t providing accommodation for these people.
That’s up to you and me as property investors.
6. First home buyers are back
First home buyers are back with a vengeance, in part thanks to the government’s new scheme to encourage them, but also because of cheap finance and rising property values.
As opposed to established homebuyer, who have a “trade in” that is increasing in value if they wait to get into the market, first homebuyers are finding the market moving faster than they can save, so they’re hopping on board the property train as quickly as they can.
7. The underlying fundamentals are strong
Sure our economy is facing challenges, and the share market is a volatile, but our property markets are underpinned part by the fact that 70% of property owners are home owners who are there for the long term.
Even though some home buyers have overcommitted themselves financially, there should be no real concern about household debt because, in general, it is in the hands of those who can afford it. There is a very low rate of mortgage default of mortgage to increase.
As the community starts to become more concerned about the economic impact of the corona virus, it is likely that there will be a flight to quality.
Bricks and mortar have always stood the test of time.
In other words, the share market volatility will make some investors look to real estate as an alternative secure investment vehicle underpinned by 7 million homeowners in Australia.
In fact it the only investment market not dominated by investors.
The bottom line
The wise King Solomon had an inscription inside his ring that said, “This too shall pass.”
This was so that he would not become too confident during the good times or too despondent during the bad times.
The coronavirus outbreak has spooked markets across the globe and there is no doubt that the coronavirus will have a significant global economic impact.
However like all the other worldwide epidemics we’ve experienced this too shall pass as did SARS, Asian bird flu, Mad cow disease and swine flu.
As an investor you should not make 30 year decisions, and your investments should be long-term focused, based on the last 30 minutes of news.
Remember the famous saying by Warren Buffett: “Be greedy when others are fearful, and be fearful when others are greedy.”
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from Property UpdateProperty Update https://propertyupdate.com.au/seven-reasons-why-i-m-confident-in-our-property-markets/
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