Let’s focus on the pandemic’s impact on the most crucial segment of our economy, the Real Estate Market. It tracks how the lockdown restrictions and pandemic stricken economic environment are affecting the real estate investment market activity. Houses are harder to buy and sell than stocks and bonds. Therefore, the housing segment is generally slow to react.
In a time of enormous uncertainty, understanding what’s happening in the Real Estate investment Market is important, as housing is the biggest source of wealth for most Australian households.
With travel restrictions, lockdowns, and daily changing guidelines, our economy is facing uncertain times. Potential vendors and purchasers may prefer to adopt a “wait and see” approach and at a minimum, certain asset classes will probably feel the greatest impact of the international and domestic travel restrictions. However, there remains a weight of international capital still interested in finding a home abroad and Real Estate Investment remains an asset class of choice. The dynamic Real Estate Market is active for both investors as well as first home buyers. The total value of residential property in Australia is more than triple that of publicly listed securities, according to the Australian Bureau of Statistics (ABS) and the Australian Stock Exchange (ASX).
So, what is the pandemic likely to mean for house prices and property values in the coming months and years?
SLOWER TO REACT
The COVID-19 pandemic has caused one of the fastest and largest global economic contractions in living memory. In response, financial markets have rapidly re-priced securities like stocks and bonds.
House prices usually take longer to reflect what is happening elsewhere in the economy for several reasons. Essentially, houses are harder to buy and sell than stocks and bonds, houses differ greatly from one to the next, and people value houses as more than just investments.
What are the key risk factors for real estate investors?
History tells us that real estate investors normally plan to hold their real estate assets as long-term assets and are therefore well placed to weather isolated shocks to the economy. However, the longer the COVID-19 crisis goes on, it may become more difficult to raise capital, borrow or service debt and investors may have to consider whether they need to divest themselves of any of their real estate assets.
Many investors may choose to ride out the storm by simply holding on to their real estate assets for longer than they would have otherwise. This will increase the pressure on prime real estate stock with potential purchasers likely to delay making real estate investment decisions in this uncertain climate.
Despite the great fluctuation of real estate prices over the years through the various downturns, Australia’s popularity has resulted in an increasing and continuous international immigration over the years. Nfinity Financials thinks that this trend is not expected to slowdown in the coming years. With significant continual demand, a shortage of residential properties in the country will continue to rise, which will translate to better rental yields and rising capital growth for investors. This displays the perfect opportunity for property investors looking for investments with positive growth potential and high return on investment.
We are in unchartered territory at the moment but the advice to those in the Real Estate Investment is to try and be as prepared as possible for further disruption. The coronavirus outbreak has clearly impacted the Australian housing market and can continue to impact as new versions of COVID-19 are being evolved. This is largely due to the decrease in consumer confidence, weaker global economic conditions and lockdown restrictions. We expect this situation to lower the price expectations of current property owners who are unable to weather the coming market uncertainties hence presenting a good opportunity for investors and First Home Buyers to pick up such distressed properties. With a positive perspective in mind, we will soon see a quick return to normalcy and logic, as we recover from this pandemic which is very mild compared to previous pandemics.