There is currently no clear answer as to how the Australian property market will react to the Coronavirus pandemic. The one thing that is currently clear is that the volume of transactions has decreased and will likely continue to fall further, particularly if the Australian economy heads into a stage 4 lockdown to prevent the community spread of the virus.
Most real estate analysts and experts are predicting that we may see some weakness in the property market in Australia due to Covid-19, however expect that it will be short-lived. They have highlighted the following key reasons for a pullback in the real estate market:
- Higher unemployment: Even despite the Australian Government’s efforts with the $130B JobKeeper program, and other support payments to local businesses, there is a high likelihood that unemployment will still increase.
- Reduced hours / wages / remuneration: Given the overall weakness in the economy, it is likely that many will have to accept a reduction in their income, hours may be reduced and bonuses are likely to be minimal if paid at all.
- Transaction figures reduced: Given the social distancing requirements and current uncertainty in the market, it is highly unlikely that the same numbers will be ‘attending’ auctions, virtual or otherwise, and there will be less transactions in the market.
- Economic weakness: It is quite likely that Australia will enter a technical recession as economic growth remains weak going forward. This could be exacerbated depending on the time taken to identify and mass-manufacture a vaccine, which could extend the rise in unemployment.
On a positive note, all of the economic weakness in the Australian and global economies has led the Australian dollar to weaken significantly. We therefore expect that we’ll likely see strong demand from both Australian expats living and working overseas, as well as foreign buyers looking at the market with interest.
With the current economic uncertainty, what additional measures and precautions should potential buyers be considering if they’re looking to buy property in Australia during the Coronavirus pandemic:
- Employment letters: If you are applying for a home loan, be sure to include a letter from your employer outlining that they are not looking to reduce your hours and that they do not expect any reduction in your overall income.
- Pre-approvals: We have always recommended that buyers secure a pre-approval before submitting an unconditional offer on a property, so this has not really changed. However, it makes the pre-approval much more important now given the uncertainty in the market.
- Purchase method: While there aren’t really any live auctions anymore, there are certainly still virtual auctions and private treaty sales. If you’re working with a buyer’s agent, they’ll be able to guide you through the best options to consider when purchasing a property.
- Independent valuations: It’s always important to ensure that you’re not overpaying, but given the current economic uncertainty, be sure to get an independent valuation on the property that you’re considering purchasing.
- Rental scenarios: Given the likely rise in unemployment, and greater financial stress amongst households who may experience difficulty meeting their rental repayment requirements, as a prospective landlord, you should consider whether you can manage the cash flows if you receive a lower amount of rent. It is highly unlikely this will last forever, however this sort of ‘stress-testing’ will ensure you don’t face any nasty surprises in future.
If you have any questions at all about opportunities or simply want to explore your options during the Coronavirus pandemic, reach out to our team today.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.