Property Market Update Amidst the Challenging Scenario

Property Market Update Amidst the Challenging Scenario

Posted on July 30, 2020 by Mirren Property Investment

COVID 19 is testing the Australian economy. While it’s still too soon to tell the extent of the impact it could have on the property market, numerous experts forecasted that there may not be as much negative impact as they first predicted.

Contrary to the initial grim forecasts including CoreLogic’s property market update during the height of the pandemic, price falls are expected to be modest and much smaller. While it’s wise to be wary, there’s no real cause for concern for the property investors who have strategically invested in their properties considering the locations and their life goals. Experts are confident that the Australian economy and the housing market shall rise again.

In addition to that, Australian Govt’s economic response to the pandemic in the form of cash flow assistance for businesses, SME loan guarantee scheme, mortgage holidays, Job Seeker and JobKeeper payments had helped in softening the market weakness and savvy investors are still looking at investing in good properties.

First Home Buyers are still Active

Due to the reducing property prices, first home buyers are now ready, more than ever, to make their first purchase and realise their dreams of owning a house.

First Home Loan Deposit Scheme coupled with Australian Govt’s Home Builder Grant and NSW Govt’s recent announcement to increase stamp duty threshold limit to $800,000 from $650,000 has added to the activity in the market by first home buyers.

Property Prices Plummeting? Not anymore.

House prices have fallen just 2 per cent since the last March-June quarter and property prices continue to grow in Regional Australia showing that coronavirus has impacted the property market differently at different locations.

This is despite hundreds of headlines saying that the housing market is swiftly going down or that prices are very low. During an unemployment crisis and bans on open homes and public auctions, Australian property markets have remained resilient. People are still selling and buying. There’s still activity in the market despite rising unemployment. This is a very positive and welcome result from the previous forecasts by Reserve Bank of Australia governor Philip Lowe.

How does a decline in economic growth and unemployment affect property prices?

During rising unemployment, fewer people will be able to afford a house. For those who still have their jobs, losing their current one may also discourage them from entering the property market. But there’s a bigger and less known scenario during the unemployment crisis.

Historically, increases in the unemployment rate have not necessarily led to house price falls. In fact, the opposite had been the case. The unemployment rate and the monthly growth rate in Australian dwellings have been moderately, positively correlated at about 0.5 for the past two decades.

This means housing growth rates have fallen when unemployment has fallen, and housing growth rates have risen in times when unemployment has risen.

While this may seem counter-intuitive, the housing markets perform well when unemployment rises. That is because when unemployment surges and the economy weakens, the monetary response has been to lower the cash rate. The cheaper cost of debt actually creates growth in housing for those who can still afford to buy.

Tips for Property Investors during the pandemic,

Diversify Their Property Portfolio

Investing in two or three properties is better than investing in only one or nothing at all. Imagine if you invested in a property in an area that doesn’t grow — after five years you won’t have any equity to spend or use to buy other properties. However, if you have three or more properties in different areas, there’s a huge chance that two of those areas will grow and you’ll have access to more equity to purchase another property.

Access Your Equity

Investors can borrow against their homes through a mortgage or a line of credit. This is the safest way to access equity. So in simple terms, you can use your existing home to get a loan for an investment property you’re planning to take.

Understand that property is a long term investment

Panic buying and forced selling have become one of the common results of this pandemic. But it’s important not to succumb to this pressure, as long as you have the funds, don’t force sell an investment. Many investors can lose great properties that are still capable of generating income just because they were spooked by the forecasts and panic. As long as your investment property is still earning, there’s no reason to offload it.

Long-term investments are the only thing that can keep you away from short-term price fluctuations. Invest in a long-term time horizon.

Hold cash reserves

You don’t know when the next opportunity will knock on your door so being prepared can be your biggest strength. A prepared investor will always have the cash to spend when he needs it the most. Extra cash is more than just security, it can also save you during the lowest points in your life.

Buy Value

This is the most obvious strategy and the easiest thing you can do. If you want to minimize losses, then do it right from the start, buy a property that is well worth its price. Start by reducing the risk and your chances of misfortune. Need to know which property will give you the best value? We can help, contact us today!

Take informed decisions

Don’t base your decisions on what other people are doing. Always, believe in sound financial principles and from experts who know their books. Most of us are just following the herd, going with the flow because it gives us a false sense of security. But that’s not the right way to think. Make important decisions based on critical thinking, data, and fundamental financial principles with a focus on long-term planning.

At the end of the day, as an investor, it’s important to feel comfortable with the investment decisions you make in the current property market. Clarity and assurance are always better than not being able to sleep at night knowing that you have loans you can’t pay.

Need help with the strategic planning of your property investment plans? Contact us for a complimentary, no-obligation session.