It’s a commonly searched question since the coronavirus and COVID-19 outbreak.
How will the Coronavirus affect house prices?
In a nutshell, sure. Naturally, it will. It will have an impact on every aspect of our economy and life in the following months. The absurdity of the Great Toilet Paper Shortage demonstrates that people are terrified and are not always acting logically. Isn't it great for the news media? Gets there any other issue that is absorbed as voraciously as the latest headline?
So, no, the property will not be lost. So the real question is, how? First, a disclaimer: the current situation is truly unprecedented, therefore no one can be confident. But history does provide some hints.
When there is uncertainty in the economy and in society, the natural tendency is to postpone major choices. As a result, there will most likely be a halt in property sales activity. Due to a lack of sellers following the 2018 price drop, substantial price hikes occurred in 2019 when confidence was restored. Price growth began to decelerate as more sellers entered the market. The current anxiety will contribute to the halting of price increases.
The stock market, on the other hand, is a key factor. In previous times of crisis, with the accompanying share market turmoil, those with spare money (investors) looked for places to put it to receive both safety and a profit. Cash yields almost no rewards because interest rates have been consistently reduced. Gold and property are likely to benefit the most from this. This, at least, applies to Australian property.
Which of the two influences on property values, positive or negative, will prevail? Our best forecast is that price increases will plateau in the short term, followed by more muted growth in the medium term. However, as previously stated, contemporary circumstances are unprecedented, and reasoning may go missing for a while. Nonetheless, it is time to be grateful that we live in Australia.
The upshot is that it will be unfavourable: a decline in prices is anticipated. People have been talking about how the real estate market is starting to pick up some steam as a consequence of the declines in interest rates that we witnessed in the previous year and the loosening of credit constraints.
However, coronavirus has altered the situation for 2020.
There is only so much that interest rate cuts and stimulus plans can accomplish
As soon as the Reserve Bank learned about the coronavirus epidemic, they immediately lowered the interest rate. Simply taken into consideration, this is a positive sign for the home market (meaning prices stabilise or go up).
However, these measures are being taken by the bank due to the fact that the coronavirus is having a negative impact on the economy as a whole. It is true that the government has begun distributing its stimulus package, and it is possible that additional fiscal stimulus will be distributed in the near future; nonetheless, any government has constraints. As a direct consequence of this, employment prospects will worsen. The economy is going to be impacted quite hard and very quickly.
We are positive that there will be a big recovery by the year 2021, but we anticipate that the transition will be difficult in the short term. It is reasonable to draw the conclusion that the coronavirus is the root cause of widespread fear in the community and, as a consequence, in the economy, which will result in the loss of jobs in particular areas of the economy.
The bottom line is that purchasers will pull back, which will remove momentum from the market and potentially lead to price decreases. This is the scenario that will play out in the housing market.
Another aspect to take into account is the impact it has had on the values of other assets. Although interest rates have dropped, other assets, particularly equities, have been hit hard by this market environment.
Because so many people choose to invest their money in the stock market, that money has been depleted for a lot of them. As a direct consequence of this, the capacity of a great number of individuals to make use of their financial resources in order to enter the property market has been reduced.
I'm looking to purchase. What information do I require?
Because the overall market is currently in a weaker position, prospective buyers who have jobs that are quite solid are actually in a better position in the current circumstances. Coronavirus will drive away a portion of prospective buyers who are taking a watch-and-wait approach or who are simply unable to acquire as a result of having a reduced income.
However, there is a second category of customers to consider, and those are people who currently have jobs but are concerned how the coronavirus will effect their wages or whether they will even be able to keep their jobs. For the time being, a significant number of these categories of potential purchasers will be prevented from entering the market.
Despite the loss of some purchasers, real estate brokers have been forced to reconsider how they offer homes.
Virtual home tours, private inspections, and internet auctions are now commonplace. Sellers can still sell privately, as they always have. Online auctions will continue to take place. Prospective purchasers can still sign up and bid online. Due to social distance laws, only 'in-person' auctions have been suspended.
Inspections will continue to be conducted via realestate.com.au's new Virtual Inspection Tool, allowing buyers and sellers to continue doing business. Buyers can virtually inspect a home and then organize a private appointment with the selling agent if they want to see it in person. Digital inspections enable real estate brokers to use videos - either professionally shot or via smartphone walk-throughs - that tenants and purchasers may access via the 'Inspections' sections of Buy and Rent listings on realestate.com.au.
The purchasers also have the option of working with a buyer's agent. The process of looking for a new home has become more challenging in recent years, which means that a buyer's agent can serve as a "middleman." Although prospective buyers are not authorised to visit normal open houses at this time, private viewings can still be arranged. By working with a buyer's agent, prospective homebuyers can receive assistance in narrowing down the range of houses they are interested in purchasing; however, they should be aware that this service comes at an additional cost (between 1.5 and 2 percent of the purchase price plus GST, depending on the state), so they should prepare themselves financially before engaging in this endeavour.
I'm looking to sell. What information do I require?
If you are a seller, you need to be aware that the situation is going to become more difficult. Those would-be sellers who are flexible and have the ability to do so will be able to delay their sales, which may help to buffer the decline in pricing.
There will always be individuals who are compelled to sell their possessions for a variety of reasons. Even though there will be fewer transactions per day, new properties will continue to be added to the market.
In a nutshell, the answer is yes. The market as a whole, including buyers' agents, sellers' agents, and everyone else, has adjusted to the new constraints. It is increasingly common practice to conduct private inspections and auctions online, as well as to take virtual tours of residences. As was always the case, sellers may also sell their items through private sales.
I am an investor in real estate. What information do I require?
The situation in the market has become increasingly challenging for investors. The market in Sydney, for example, is now oversupplied, and there has already been some downward pressure on rent prices. There is some potential for investors to benefit from a fall in interest rates; however, this benefit is being offset by a decrease in rents.
The coronavirus appeared during this time.
The recession that it is producing in the economy will exacerbate the downward pressure on rent prices in the short term, and investors need to be aware of this fact in order to make sound financial decisions.
The weakness in rents is a real factor; it has been for some time and is not going to go away any time soon. If prices fall down, investors may be in a better position to buy (to develop or add to an existing property portfolio), but this weakness in rents is unlikely to go away any time soon.
Regardless of the state, you're looking at, the big picture is often consistent. Although the particulars of what each market is doing may vary significantly from state to state, generally speaking, the gist of the concept is the same for all markets. Coronavirus can be found in all environments. It is expected that its effects on the real estate market would be widespread.
Even while the vacancy rates in Melbourne aren't as high and the market has been performing well, there is no doubt that the coronavirus will cause many buyers to be more cautious and will urge many sellers to postpone their plans.
Property securities that are listed versus unlisted can have different implications
Depending on the length of time that Coronavirus will be around, it is feasible that investors who purchase listed property securities and investors who purchase unlisted property securities would have quite different experiences.
A-REITs, which are also known as listed property securities, are traded on an exchange, and the value of these securities is continuously decided by the forces of the market. As a consequence of this, there is an instantaneous change in valuation if there is new information or a shift in investor sentiment. We have seen the repercussions of this over the course of the previous few weeks, and they have taken the form of high levels of daily and intra-day volatility. These effects have been visible to us because they have occurred.
On the other hand, the unit values of unlisted property securities are decided upon using an appraised valuation, which is done on a regular basis. This decision-making process takes place on a regular basis (monthly, quarterly, or annually). The trustees of unlisted property securities are required to adhere to a preset valuation policy, which specifies the frequency with which each asset in the portfolio is evaluated for its worth. This policy also outlines any exceptions to the policy that must be reported immediately. In most cases, one-fourth of the portfolio will be evaluated every three months, and the total portfolio value will be determined at the end of the year based on these evaluations. This typically eliminates an overreaction or underreaction from any specific news incident, and it offers investors an experience that is less volatile overall.
The market evaluates A-REITs on a daily basis; nevertheless, the assets that are held within each listed security are still valued using the same methodology that was mentioned earlier in reference to unlisted securities. This is the case despite the fact that the market evaluates A-REITs on a daily basis. As a consequence of this, there may be significant differences between the Net Tangible Assets (NTA), which are a lagging indicator of the value of the assets, and the implied value, which is determined by the price of the listed instrument. The price of the listed instrument is what determines the implied value.
As an illustration of this effect, during the course of the previous six weeks, the A-REIT sector moved from trading at a premium to NTA to trading at a significant disadvantage, which is an example of how the effect can play out. For instance, Dexus Property Group (ASX: DXS) has gone from charging a premium of 15 percent to charging a discount of 5 percent, and GPT Group (ASX: GPT) has gone from charging a premium of 3 percent to charging a discount of 19 percent. Both of these examples come from the Australian Securities Exchange. The Australian Securities Exchange is where each of these businesses have established their listings. On the other hand, A-REITs will be the first to react to any favourable news on Coronavirus and will be the ones to do so first. They will also be the ones to do so first.
There is significant variety among A-REITs.
It is absolutely necessary to do an in-depth examination of the many different risk profiles that can be found within the A-REIT industry.
The rent collectors that assume very little to no risk can be found at the very bottom of the range. These A-REITs have accumulated a portfolio of existing core assets that, taken as a whole, are of a very high quality. In addition to this, their tenant covenants are extremely solid, and the amount of debt leverage on their balance sheets is fairly moderate. In comparison to other investments of a similar nature, these securities provide investors with a greater degree of direct exposure to property assets.
Listed property securities are subject to risks similar to those associated with equities due to the presence of more active revenue streams, such as finances management, development projects, or operational risk. When compared to unlisted property securities, the risk associated with these listed property securities is significantly higher. Outperformance during times of rapid economic expansion is often the result of the greater degree of risk that is connected with the type of A-REITs being discussed here. The defensive qualities of pure property securities, on the other hand, offer investors some downside protection and a level of income that is more sustainable when the market changes into a "risk-off" phase. In spite of this, due to the severe reaction to Coronavirus from the market, A-REITs are pulling back on the guidance that they provided during the reporting season less than two months ago, and we anticipate that some of them will reduce their payouts. This is because of the severe reaction to Coronavirus from the market.
Impacts can vary greatly depending on the sector
The most immediate impact of Coronavirus within the real estate sector has been connected to assets that host large groups of people that have a floating population. Examples of such assets include shopping centres and hotels. Listed property securities have also been caught up in the downturn of the stock market. The number of people walking through major shopping centres has significantly decreased, and hotel occupancy rates are low while the number of cancellations has increased.
Office buildings and other social infrastructures like nursing homes, daycare centres, schools, and even jails are included in the second category of assets that can be owned by a company. Even while the population of these kinds of establishments tends to be more consistent over time, they nonetheless host large numbers of people every day. When compared to the first category, the ability to compartmentalise and exert control over certain categories of assets is far higher than it is in the first category. Only now are we starting to see a reaction to the Coronavirus, with firms that occupy these buildings beginning to put in place Business Continuity Plans, flexible working policies, and quarantining personnel.
The supply side has the most impact on the final category of assets, which is why it is included last. Tenants of industrial buildings whose companies are active in logistics are included in this group because the constraints placed on the flow of products are having an effect on the activities that they engage in. This is because their businesses are being influenced by the limits. To a comparable extent, the building industry in the residential property sector requires materials to complete properties and, subsequently, purchasers to acquire completed stock. On the other hand, a significant number of purchasers, notably overseas buyers, have exited the market.
A rebound in 2021
The economy is going to have a tough time in 2020 for a variety of reasons. There has been growing speculation that the economy may enter a recession, and while it is possible that large corporations will not have to let go of a large number of employees, a significant number of small businesses are confronting the possibility of experiencing low or even no revenue. It's possible they don't have a choice.
There will be a significant impact on the financial capabilities of micro, small, and medium businesses. If you own a restaurant and no one is coming in, you might be forced to lay off some of your crew or even close down entirely. Even while the stimulus package is very carefully targeted, there is no way that it will prevent all of these impacts from taking place.
The RBA has expressed optimism over a recovery in the latter half of this year. I certainly hope that they are correct, but I anticipate that at the very least by 2021. Regardless of the outcome, it is essential to keep in mind that there will be a comeback.
The human race will rebound. People will frequent restaurants once again. Attendance at football games will be rather steady. Things will become better at some point in the future. Things will return to normal at some point in the future, but there are going to be some casualties in the corporate world along the way.