Will the Coronavirus impact the Australian Property Market?


Will the Coronavirus impact the Australian Property Market? 

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I must admit that I often find myself feeling glad that my passion for investing sits firmly with property and not with shares. 

Please don’t think that by saying that I believe my property investment strategies are the only smart way to invest, or that investors are crazy to invest in shares. I’m certainly not that narrow minded. But every time I see headlines about an overnight crash of the stock market it highlights my preference for low risk investments.

This week for example it’s easy to find multiple headlines such as ‘Aussie stock market sheds $50 billion as investors spook on coronavirus fears’.

I’m sure the ‘share loving’ investors reading this post will have plenty of compelling arguments to defend the merits of Stocks v’s Property and I certainly respect their opinions and their passion. But my point is not so much about what investment choice is better, but rather what investment reacts quickest to global issues. For me, I’d hate to wake up in the morning to find that my investment had lost 20% of its value overnight due to fear or an emotional reaction by other investors often from other continents. Yet this reality feels all to regular with Stocks.

Whilst the impact on property values typically takes much longer to be seen, and in many cases the impact is not as obvious due to property being far less liquid which prevents investors who panic having the ability to sell almost instantly, the effects of an economic ripple can still eventually be felt in bricks and mortar. Only a fool would pretend that certain property markets within Australia are not already feeling the effects to some level, and the full effects will obviously depend on the vastness and severity of this epidemic. 

Potential Impact To Real Estate 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. So many aspects of China’s economy have an impact on Australia that it would be very possible. The impact just within the tourism sector given that our biggest number of visitors come from China, and sectors of our economy supported by hundreds of thousands of Chinese students, will both have immediate impact across many regions. But I’m sure our greatest pain will come via the huge importance we have on our Chinese export revenue. This powerful market currently generates over $90 Billion per year for the Australian Government so the flow on effect certainly has the capacity to hurt our overall economy.

Australia Is Not One Property Market

As always, investors need to be aware that there are hundreds of property cycles within Australia, not one. Yes it’s possible for an economic melt down to occur that would effect every cycle but your judgement around the potential of this event ever occurring needs to be practical. A catastrophic economic event is possible but highly unlikely. If our focus was to protect ourselves from a potential upcoming ‘Armageddon’ no one would ever invest. 

A more practical risk management measure is to focus on markets that offer low supply of property and strong rising demand driven by above average population growth. At the core, these markets usually feature unfair advantages such as massive well funded infrastructure projects that are creating large volumes of short and long term jobs. They also offer affordable investment opportunities to investors with often cashflow positive holding costs and incredibly strong rental demand. When investors target the right areas the risk profile is completely different to purchasing in our most expensive cities offering less than half the rental yields. These properties can feel like you’re carrying the weight of the world if the economy changes for the worse.

Investment Conditions Could Improve

Whilst nobody wants Australia to experience a serious economic downturn even this potential situation may be of benefit to investors. A downturn in our economy would trigger the need for the Reserve Bank to cut interest rates even further making some of our best performing markets an outstanding proposition for informed investors. High positive cash flow and even lower interest rates would help investors aggressively target the reduction of personal home loan or enjoy even more income in retirement. 

Over my 30 years of investing I've seen plenty of 'Doom & Gloom' economic periods that have provided most of the best buying opportunities I've experienced as an investor. The GFC provided an opportunity for me to secure 15 properties for myself personally in 15 months. Those properties have performed incredibly well with many since tripling in value. I've grown to realise that when our economy is most confident, opportunities are few and far between.  But when confidence is low the opportunities can be life changing for investors.

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