Opinion: Is the impact of COVID-19 a repeat of SARS for the property market?
In comparison to other outbreaks, for example, SARS in 2003, based on the swiftness of Government, The Reserve Bank of Australia (RBA) and the Bank’s responses; Australia and the world are in a better place to ride out COVID 19.
The previous SARS event caused a short term slowing in our property market. China’s output slowed down for a few months. Its market bounced back up once the outbreak was under control and the introduction of economic stimulus.
Below is an extract from “Has SARS infected the property market? Evidence from Hong Kong” by Grace Wong Journal of Urban Economics 63 (2008) 74–95 (complete paper attached appendix 1)
“Several noteworthy results emerge from this analysis. A Hong Kong-wide price decrease of 1.6 percent above the preceding trend is identified after the start of the epidemic for all housing estates, as well as an additional decrease of less than 3 percent for the average SARS-affected estate, i.e., those that were publicly known to have had SARS cases or were mentioned in the newspapers in relation to SARS. The implied economic value of life, from $121,000 to just over $1 million, falls towards the lower end of the range based on studies of less extreme risks. Although the nature of the SARS risk limits the extent to which this value of life estimate can be generalized, it helps put the SARS-related price decline in perspective. Given the low implied values of life, I conclude there is no evidence for price overreaction.”
In Hong Kong during SARS, the average price decline was 1-3% in SARS-affected estates and 1.6% for all other estates. The Australian property market had a slowing in transaction numbers. However, prices continued to increase (albeit at a slower pace) well into 2005.
Our property prices didn’t suffer significant setbacks during the Swine Flu outbreak in 2009/2010. It stabilised, and there was little growth. However, the swine flu occurred between the Global Financial Crisis in 2008/2009 and the mining downturn 2011/2012. Other economic downturns that impacted, such as unemployment and housing activity.
With COVID 19, we are not even waiting a few months for the release of economic stimulus, and the Government is already taking action. COVID-19 may feel more ‘extreme’ due to the swiftness of the virus’s infected cases in Australia, the lockdown of many countries, requests of self-isolation and cancellation of many significant events and restrictions on business operations (particularly small businesses). However, at the same time, there is an economic stimulus swiftly introduced to assist during these trying times, and there have been massive advancements in technology (compared to 2003 and 2009), that will allow many businesses to innovate their ways to do business.
The previous breakout of SARS caused a decrease of 1.6% to the Hong Kong property market, and this did not have the current Australian initiatives and factors to minimise any short-term consequences:
a. Interest rates in Australia are low.
b. The current exchange rate of the Australian currency is low.
c. There was Immediate Government intervention with both short-term controls and $320.0 Billion of incentives.
d. One of Australia’s major exports is resources which continue (volumes have not been affected by demand or production) to show price increases across the board, other than lithium.
The trend of COVID 19
In the last nine days, the rate of COVID 19 infection as of the 9th April 2020 across Australia (refer graph below) has dropped across Australia and Victoria. There is a clear trend in comparison to the previous direction from early March.
Australian new COVID 19 cases of infection as at 1/4/2020 across Australia sourced Australian Government
The ABC (Australian Broadcast Corporation) website
The previous graphs show a compelling trend that the rate of infection is dropping and most likely will continue to decline.
We have not seen the end of the COVID 19 infection rate, but the end is in sight.
In an article in the Australian Financial Review on the 7th of April, the Australian Prime Minister has already started to discuss the staged relaxation of the COVID 19 measures that they introduced.
Pent up demand, China’s recovery
China is further advanced in this COVID 19 recovery cycle. Last week there was a 5% increase in prices and activity in the top 30 tier-one cities in China. Pent up demand has been the nominated factor.
Rising land prices have the potential to drive up home prices in a market under close scrutiny by the country’s policymakers. In March, new home prices were up 4.2%, 12.2% and 11.4% year-on-year in 70 of China’s first-, second- and third-tier cities respectively, according to data released (link in Mandarin) by the National Bureau of Statistics (NBS) in mid-April.