Opportunities in the market from COVID-19 outbreaks
Published 12:29 am 24 Aug 2020
A combination of good luck and good management has so far helped Australia avoid a COVID-19 housing crash. But beware because the market is changing. With the economy reeling again from fresh outbreaks, the housing market may be set to fall, writes DGI Founder and CEO Dominique Grubisa.
We were expecting a tsunami but ended up with a dribble.
While many of Australia’s top finance economic experts tipped a massive housing market crash due to the initial impacts of coronavirus, the reality has been less dramatic. Rather than plunging up to 30 per cent as some of the big banks had tipped, prices in Sydney fell a modest 2.1 per cent in the three months to July, while those in Melbourne fell 3.2 per cent. Figures from CoreLogic show that Australia wide, the market dropped just 1.6 per cent.
But don’t write off the impacts of COVID-19 on the property market too soon. While positive consumer sentiment and government policy have helped many property owners avoid an economic catastrophe, many analysts are predicting the further current outbreaks of coronavirus may be the straw that breaks the camel’s back.
So, why didn’t the initial coronavirus pandemic cause the property market to plummet? A combination of factors held people back from the type of personal economic crisis that leads to forced sales and a flooded market. The government’s JobKeeper scheme and decision to allow people to dip into their superannuation were significant factors, as were the mortgage holidays the banking sector granted property owners. Some 800,000 Australians deferred repayments, while about $28 billion was withdrawn from super accounts.
The prospect that Australia, like New Zealand, might be able to eliminate COVID-19 contributed to positive consumer sentiment. Large numbers of people who would typically be selling properties decided to hold off and wait for an economic recovery, leading to a 32.4 per cent drop in sales volumes.
Further outbreak fall-out
But with Victoria now experiencing a further major outbreak of the virus and the continued spread of the disease throughout NSW, the situation has changed. The economic recovery that many people hoped would occur in the second half of 2020 has vanished, with hundreds of millions of dollars draining from the economy each week. When the OECD issued its economic forecast for Australia in June, it warned that GDP would be likely to fall five per cent over the rest of the year, but further outbreaks could push that figure up to 6.3 per cent.
Recent figures show the dire cost of Melbourne’s current lockdown on Australia’s economy, with up to $25 billion expected to be lost in the September quarter. With our international borders tightly shut, immigration has all but ground to a halt, and international students and tourists have evaporated. Meanwhile, the JobKeeper scheme is being scaled back from September and banks are expected to end their blanket policy of granting mortgage holidays in January next year.
Top economist has predicted the current resurgence of COVID-19 has the potential to devastate the property sector. Credit agency S&P warned recently that the national property market was still likely to fall 10 per cent, with properties in Sydney and Melbourne to be hardest hit.
The sentiment was echoed by AMP Capital Chief Economist Shane Oliver, who told the Australian Financial Review that the further outbreaks of COVID & Victorian’s shutdowns were likely to have a significant impact on Sydney and Melbourne prices.
“l suspect Melbourne house prices are on their way to fall somewhere between 10 and 20 per cent from the peak, of which it’s already done about 3.5 per cent,” he said.
“Sydney is probably on its way to a 10 to 15 per cent drop, of which it’s already done 2 per cent.”
Tim Lawless, head of research at CoreLogic, warned the looming end to government and banking sector support measures could have a dire effect. “Urgent sales are likely to become more common … which will test the market’s resilience. Similarly, the recent concerns of a second wave of the virus and renewed border closures and stricter social distancing policies are likely to push consumer sentiment further down.”
The news is frightening for people who hold wealth as equity in a property, from owner-occupiers through to investors. But there is also hope for those looking to protect their assets.
The DG Institute’s Master Wealth Control service provides individuals with a means to lock their assets away against attack from creditors should an economic crisis arise.
The strategy provides a way to protect your assets of all classes; however, they are held not only while you are alive but also protect your legacy for your beneficiaries after your death. That way, you and your family will be in the best possible position to bounce back and thrive once the worst of the coronavirus fall-out is over, and the world enters a new economic era.
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