The Coronavirus pandemic is understandably causing many people concern and unrest and there is much talk in the media about the possible effects on the economy and the Australian property markets.
We have considered and researched this broadly while discussing it with other industry professionals, and the opinions of the experts in our field are generally very similar.
While it is personally terrible for those few who are directly impacted health-wise and those whose jobs or businesses are suffering such as tourism, retail and hospitality, the impact on the property markets has arguably more positives than negatives, as whenever there is an economic downturn like this, the RBA reduces interest rates and the government spends money on stimulus packages, in a similar way to during the GFC.
Unemployment only went up by about 1.5% during the GFC, but interest rates were reduced from about 8% down to about 5% and the government spent many billions on stimulus packages, which pushed almost all property markets up, especially those with the strongest fundamentals. A similar thing happened during the 1991 recession and the stock market crash before that.
History shows what happened to the Australian property market during similar events, like SARS, bird flu and mad cow but also the GFC, the 1991 recession, the 1987 stock market crash, Sep 11, etc, however, the main question for the property markets remains, what are the overall fundamentals for that area?
SARS lasted about 3 months, China has already significantly reduced the infection rate, Australia is very well prepared for it.
This is an international virus and is far more likely to impact many other countries a lot more than Australia, which may well encourage more people from overseas to migrate to Australia, putting further pressure on demand. Supply of materials and fittings may be constrained and builders may find themselves unable to complete as many property projects due to the shortage, so there is a strong chance COVID 19 may even push property prices up in this way as well.
The fundamentals are very strong for the medium to long term in the Brisbane, Canberra and Adelaide markets we are currently recommending to clients and the risk of COVID 19 pushing these markets backwards is extremely low.
If you look at this graph showing the Brisbane property market during SARS, there was no noticeable impact whatsoever, in fact, there was a very large boom, mostly driven by high relative affordability to Sydney, which drove very high interstate migration, similar to the levels we are currently experiencing.
We believe that markets like Sydney and Melbourne where the fundamentals are currently a lot weaker, with significant affordability issues, have more at risk, however reducing interest rates and supply will likely minimise any impact there too.