Changes the real estate industry will experience as a result of the Coronavirus
OPINION:
Earlier this month, I wrote about how the market will react to the Coronavirus (COVID-19) before it became a pandemic. Now, three weeks on, we have seen the impact it has on numerous businesses and our daily lives. Currently, Australians are living through one of the most significant economic and social upheavals in our history.
For the real estate industry, the most direct impact from changes announced by the government would certainly be the social distancing restrictions prohibiting open inspections and auctions. These restrictions have forced a lot of new changes to the way they operate, including virtual inspections and online auctions. Last weekend we saw a mix of selling via online and phone auctions, as well as going back to more traditional ways of selling such as private sale or selling by tender.
Virtual Reality for real estate has been around for many years, allowing people to “try before you buy” without spending time and money travelling to scope out properties. However, the traditional open house has always proved popular as one can physically see, touch, hear and even smell the house and environment they may potentially be living in. But with these restrictions in place now, technology will again come into the forefront and will eventually become the new norm.
While the industry is able to change and adapt, the more telling signs will be the impact on the number of listings and days on the market. From the seller’s point of view, if they are not under pressure to sell, they may hold off until after this pandemic is over. On the other hand, if we continue to see job losses, many house owners under financial stress may be forced to sell.
For investors, at a time when many people sit on the sidelines waiting to see what’s going to happen, many will see this as a great opportunity to buy a property considerably cheaper than they would have a few weeks ago and much cheaper than they will have to pay for it in 12 months.
The government has no choice but to offer relief for those affected by the crisis. The Prime Minister reinforces that they are “building bridges” to help us get to the other side. At this stage, it looks like commercial and residential landlords will be receiving some type of support, such as concessions on negative gearing and land tax. This will mean they will be asked to forgo rent, hence easing some pressure off renters. Already several major retailers, particularly those in shopping centres, have said they will not pay rent while closed. This is likely to extend to office tenants that are under similar stress.
The RBA and the government’s focus is on supporting businesses and households who will suffer significant income hits, forcing an emergency rate cut to a record low of 0.25%. RBA governor Phillip Lowe explained,
“We are clearly living in extraordinary and challenging times, the Coronavirus is first and foremost a very major public health issue, but it’s also become a major economic problem and it’s having deep ramifications for financial systems right around the world.”
It is still uncertain as to what the ultimate economic impact of COVID-19 will be, as well as what the fall out will be for property. However, with most economists accepting that we’re heading for, if not already in, a recession, some are wondering if COVID-19 will finally cause our property markets to crash.
The bright side is that historically, after each global disruption, there has been a rebound and increase in property prices, and there is no reason to suggest this will be any different as the underlying property fundamentals are still strong.