Seven reasons why I’m confident in our property markets despite the corona virus scare

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?

Property Market

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 other 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 hospitality, tourism, education and those who supply chain from South East Asia will be affected.

But the biggest effect will be the slashing of business and consumer confidence.

While we may not have a pandemic – yet – we have an “infodemic” with the media, including social media scaring us and panicking many people into buying toilet paper, bottled water (why? the virus doesn’t live in water) and even avoiding Chinese restaurants in suburban Australia. (????)

Back to my original question, what will this due to our property markets?

Of course, I don’t really know.

But based on my perspective having been involved in property for over 47 years, while this issue will have an effect on our economy and a short-term impact on our property markets, because consumers will become less confident and sit on the sidelines waiting for 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 at that time.

Don’t get me wrong – I see some serious short term economic issues, but the underlying fundamentals supporting Australian property markets have not changed.

As I’ve always said…don’t make 30 year investment decisions based on the last 30 minutes of news.

It is quite likely that Australia’s economy will fall into a technical recession in the first half of this calendar year.

But given a likely recovery in the second half of this year, it is much more likely that this will be seen as a short-term, but major disruption to our economic growth rather than the type of recession Australia last experienced early 1990s.

Of course, the outcomes for our economy, jobs growth and our unemployment figures will depend upon the effectiveness of the stimulation package and government is proposing.

So from a property perspective a virus that will affect our economy for 6 weeks or 6 months will come and go in a relatively short time frame.

Just like:

  • Asian Bird flu did in 2015
  • Swine flu did in 2009-10
  • The GFC came and went in 2008-9
  • As did SARS in 2002-3 and
  • September 11th in 2001

I can go on and on….

Remember the scare about Mad Cow Disease?

In fact I remember scares of Global Cooling before Global Warming and worries that our planet could not produce enough food to sustain our population.

But this is the first global crisis we’re experiencing in the social media age and we’ve learned that:

  • Information spreads fast and
  • False or sensational information spreads faster.

So, remember  these wise words…

As Warren Buffet said: “Be fearful when others are greedy and be greedy when others are fearful.”

Home buyers and long term investors who have a secure job and income and pre approved finance should take advantage of any short term downturn in our property markets to set themselves up for the next phase of the property cycle.

As I said, I’m comfortable with the underlying fundamentals supporting our property markets int he medium to long term.

Let’s look at a couple of them…

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 estates or large apartment complexes, we’re going to experience an undersupply of well located properties in our capital cities in the next year or two.

3. Interest rates are low and will go down further

Interest RateThe prevailing low interest rate environment is making it easier to own a home, either as an 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 households tend, in general, to be smaller as are the households of the booming 65+ year old demographic.

More one and two people households means that, moving forward, we will need more dwellings for the same number of people .

5. More renters

RentSoon 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 first home buyers wait to get into the market they’re 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  volatile, but our property markets are underpinned by the fact that 70% of property owners are home owners who are there for the long term.

They’re not going to sell up their homes – they’d rather eat dog food than give up their homes.

And the Australia’s banking system is strong, stable and sound.

Even though a few 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 currently 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 assets, and 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.”

Bad Times Good TimesThis 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 world and there is no doubt that it will have a significant global economic impact.

However like all the other worldwide epidemics we’ve experienced this too shall pass.

At his inaugural address in 1930 Franklin D Roosevelt said: “There is nothing to fear but fear itself.” Wise words indeed.

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Michael Yardney

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


'Seven reasons why I’m confident in our property markets despite the corona virus scare' have 9 comments

    Avatar

    March 22, 2020 Tamer

    Well said Jay, I strongly agree with you !
    It does not matter where someone own a property or not, the point is focus on the real economy!
    Houses should be affordable to the majority..

    Reply

    Avatar

    March 19, 2020 Mark Wall

    Hi my name is Mark, my question is, iam looking at buying a Investment property in Brisbane, my concern is should I go ahead with this purchase in this current climate?

    Reply

      Michael Yardney

      March 19, 2020 Michael Yardney

      I understand your concerns – I’ve answered your question in this blog, once you have read it please remember that you will need to be very, very careful in choosing the right investment-grade property

      Would you like to team at Metropole to help you? If so click here to find out more about what we do and then click here to leave your details

      Reply

    Avatar

    March 16, 2020 jay

    This is really annoying to see people like you talking about more immigration, less supply and more renters for investors to be happy like this is a good things for society and economics. Instead of speculating on homes (something people really need) why not using this money for production and create more enterprises. This would make Australia stronger in this world. Not just make some people rich at the expense of others. This is not pessimism, this is just an opinion regarding a country that just rely on property and mining resources to survive. No industries, no big tech and no innovation…Well done!

    Reply

      Michael Yardney

      March 16, 2020 Michael Yardney

      Jay – I can see where you are coming form – interestingly I don’t see your and my views being mutually exclusive – just because I own a home doesn’t stop you owning one – does it?

      Reply

    Avatar

    March 13, 2020 David

    Hi Michael,
    Thank you for your ‘calm’ in all of this ‘crazy’.
    I attended your property market and economic update seminar in Brisbane last weekend and feel well placed to push forward with the noise in context.

    Reply

    Avatar

    March 11, 2020 Bianca

    Yet another very insightful & helpful article, Michael. Thank you! I especially loved your inclusion of Warren Buffet’s quote about being greedy when others are fearful. I had to laugh when my Husband exclaimed ‘we should buy heaps of toilet paper and sell at double the price!’. Gotta make light of these crazy times…
    Thanks again for your brilliant information.

    Reply

      Michael Yardney

      March 11, 2020 Michael Yardney

      Thanks so much Bianca – your kind words really made my day – so different from all the pessimists

      Reply


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