Coronavirus. All told, it could cost the global economy $2.7 trillion— and now it’s in Australia. This could have big consequences for the Australian economy and the property market.
COVID-19 is a novel coronavirus first discovered in late 2019. Likely originating in a market in Wuhan, China, coronavirus is a type of viral pneumonia. Symptoms include difficulty breathing, fever, and coughing.
COVID-19 is notable because it has spread so quickly and because it has a death rate of nearly 6% in America (though other countries average much lower). That being said, the high death rate is also related to the low amount of testing being done, which means that only very extreme cases are likely to be listed as COVID-19 at all.
In the past few weeks, coronavirus has caused numerous travel advisories and warnings. Many are being advised not to travel at all if it is not essential, and China is considered a particularly high-risk zone.
To counter coronavirus, the Australian government has enacted an emergency plan. We have been advised to keep business going as usual. You may see large gatherings cancelled, work from home encouraged, and both aged care homes and childcare homes protected. Government agencies and state and territory governments are collaborating to manage and mitigate the impact of the outbreak — from travel restrictions to screening of travellers to the proliferation of information to the provision of P2 and surgical masks.
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It was not long ago that the nation was struck with the devastating news of the bushfires. Tagged as Australia’s costliest natural disaster, it took a toll on our economy. Now with this global health crisis continuing to spread across the world and in the country, people fear that we are on the edge of recession.
“The message is very clear, the impact will be more significant than the bushfires, and it plays out more broadly across the Australian economy,” Treasurer Josh Frydenberg has said.
For the first half of 2020, we may see the economy weaken due to weak exports and tourism and China’s slowed growth.
Australia’s economy is fairly diverse, and there are reasons to believe that it can rebound from these challenges in the second half of the year.
PM Scott Morrison has urged, “We now have one goal together this year: to protect the health, the wellbeing, and livelihoods of Australians through this global crisis, and to ensure that when the recovery comes — and it will — we are well-positioned to bounce back strongly on the other side.”
Still, the problems that COVID-19 presents are vast, and the outbreak will inevitably impact the property market.
Despite COVID-19, the RBA believes that this year will still have strong growth and that the housing market will rise. Real estate itself tends to be a strong investment during tumultuous times.
Our CEO, Theo Chambers, in his letter to our partners this week, wrote —
There’s no doubt there is a severe economic impact which is evident in the global stock markets crashing; however, as mentioned, I think we can compare things to the GFC, where we saw even worse stock market crashes coupled with much higher interest rates, and get comfort seeing how buoyant the Sydney property market is.
Note we already did just see a crash of -9% last year in Sydney for FY19. The crash last year, most economists would say, was also mainly due to tightening on lending policies and the subsequent Royal Commission where borrowing money became so difficult for both residential and commercial borrowers.
Interest rates are worth referencing as we just don’t see how the property market will fall drastically when borrowing money is at record lows. There are banks now offering 2.40–2.50% fixed rates for 3 years, which significantly increases affordability to both owner-occupiers and investors, as this time last year, our best rates were more around 3.70-3.90%. These low rates also mean less people are going to be forced to sell their properties even if faced with tough times, redundancies, job losses, etc.
Lastly, there is also just constant demand for Sydney metro property and countless data showing a major housing shortage as we have a growing population and severe lack of supply.
For more information about what COVID-19 could mean for your financial future, contact our experts at Shore Financial.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.
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