Could the coronavirus affect the Australian property market?
The coronavirus is all over the news globally at the moment. A potentially deadly strain of this respiratory virus broke out in Wuhan in China in December 2019. Here are some disturbing facts about it:
- the coronavirus is highly contagious.
- by mid-February, 15 cases of the coronavirus had been reported in Australia, though none have yet been fatal.
Besides the obvious serious health risks, the coronavirus could also have serious impacts on our property market. But first, we’ll look at the potential impact on the Australian economy. How the economy is affected by the coronavirus will inevitably affect how the Australian property market is affected.
The potential coronavirus impact on the Australian economy
The Australian government initially imposed a two-week ban on tourists travelling from mainland China to Australia in early February. That ban was recently extended by a week to February 22. It will be reviewed again (and possibly extended again if necessary) before then.
Federal Treasurer Josh Frydenberg has already warned that the coronavirus will have a significant impact on the Australian economy. That’s because our economy is heavily dependent on the spending of Chinese tourists and students, as well as on Chinese export revenue.
All of these sectors are likely to be heavily hit by both the coronavirus outbreak and the travel restrictions that are currently in place. For example:
- half of the 200,000 Chinese students that were due to begin studying in Australia in early 2020 are still stranded at home. The longer that remains the case, the worse the impact on the Australian economy.
- Chinese visitors are easily Australia’s largest international tourism market. If Chinese tourist numbers fall (as seems likely), the Australian economy will inevitably take a hit. The flow-on effect of fewer Chinese visitors to Australia will also be felt in businesses like retail, restaurants and accommodation.
- The latest PriceWaterhouseCoopers analysis forecasts that the Australian economy could suffer a combined $2.3 billion drop in revenue from fewer Chinese tourists and students visiting our shores.
- China is also easily Australia’s largest export market, currently generating over $93 billion in annual revenue for the Australian economy! Any downturn in the Chinese economy due to the impacts of the coronavirus will hurt the demand for Australian commodity exports like iron ore and coal.
The potential coronavirus impact on the Australian property market
The Australian property market is affected by the state of the Australian economy. So if the economy is affected by the coronavirus, there will naturally be a flow-on effect for the property market. But it’s important to understand that the impacts could potentially be positive or negative.
Potential positive impacts include:
- demand from local or overseas buyers (including those from China) increasing in the market. During times of economic uncertainty, people tend to view property as a fairly safe investment (especially compared to the share market). When property demand increases, prices rise, which is a win for property investors!
- a potential further cut in interest rates in Australia. Our interest rates are already at record lows, but they could be cut further by the Reserve Bank if economic growth in Australia starts to slow due to the effects of the coronavirus. Lower interest rates could further increase property demand.
On the flip side, if there is a serious economic downturn in Australia, China or globally, there could also be negative flow-on effects for the Australian property market.
Potential negative impacts include:
- property in Australia becoming less affordable for buyers for any reason (such as low wage growth or higher unemployment).
- less Chinese students coming to Australia (resulting in less demand for investment property rental accommodation).
- less Chinese investors coming to Australia to check out the local property market and buy investment properties.
- the Chinese government is potentially deciding to restrict the flow of funds out of their country to protect their own economy. If they do that, it restricts the ability of Chinese investors to buy property in Australia.
Is the Australian housing market slowing down?
The overall Australian housing market is showing signs of life after appearing to bottom out in mid-2019. Three interest rate cuts in the second half of 2019 by the Reserve Bank are likely to have helped. Fears of a housing bubble in the Sydney and Melbourne markets reached their peak just prior to the recent upswing in house prices in those cities.
But it’s important to understand that the potential coronavirus impact on the market is too early to tell at this stage. It’s important to regularly monitor Australian property news to stay informed of the latest market developments, trends and impacts.
The bottom line
Unfortunately, no one has a crystal ball to be able to accurately predict the future. We can’t be sure how the coronavirus health crisis will pan out globally. We also can’t be sure how it will affect the Australian economic outlook or our property market.
But it’s important to monitor the latest developments and to stay informed. That will help you to make the right decisions to ensure both your personal and financial health.
And we can certainly help you with the latest Australian property market news and information on the Australian economic outlook.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at email@example.com
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.