A few weeks ago Treasurer Josh Frydenberg confirmed that Australia is in the midst of its first recession in 29 years. We may have not had the two consecutive quarters of declines in gross domestic product (GDP) needed to technically be in recession but Mr Frydenberg told reporters that Australia is in recession. “That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be,” he said at the time.
So what will this recession mean for Australian property prices and is it a good time to buy? That’s the question we posed to three property experts. Here’s what they had to say.
There’s lots of different property markets around Australia and as some rise, others may fall. Factors such as our economy, interest rates, unemployment and immigration have a massive effect on property values as does the price of the property, its location, condition and the property agent that is managing or selling it. The ultimate factor that really determines what’s happening to a particular property in a particular area is supply and demand.
With almost 30 years’ personal investing experience and 10 years hosting Sky News Business, I choose to invest in median-priced, second-hand, blue chip properties in blue chip locations around our main capital cities as I believe that they are less likely to fall in a downturn and more likely to rise in an upturn. They’re not going to double overnight but at the same time, they’re unlikely to halve overnight. Those properties normally sell for a 5%-10% premium at auction and at the moment we’re seeing them sell for a 5%-10% discount, but I believe that’s going to be a short window and that will bounce back as confidence returns as talk of COVID-19 reduces.
That’s where I see the opportunity and that’s why I think it’s a great time to buy if you’re cashed up. I wouldn’t time the market, I buy when I’ve got the cash to buy.
Many property markets won’t be as solid and I particularly worry about high-rise, brand-new apartments especially in areas where there’s lots of oversupply and not much demand. Foreigners can’t buy second-hand properties and have to buy brand new and there doesn’t seem to be much demand from them over the past few years. There’s also a worry about the quality of the buildings.
As you move to more rural areas the future will all depend on that specific area and what’s happening with local industry, especially if it is reliant on just one or two of them. Some businesses are really struggling whilst others are booming. Much of this will come down to luck of the draw.
When it comes to more expensive property or niche property, a lot will come down to luck as well and how well you chose when you bought. If you tick all the boxes for what buyers want and you’re on the right side of the street, then things could be rosy. Missing out on parking, not renovated to the right taste or haven’t picked the best agent and you might be suffering.
The key with most property is to hold on for the long term as then you often won’t even notice any temporary dips in the market. So, make sure you’ve got a competitive mortgage, you’ve saved up some spare cash buffer, have access to your equity through offset or redraw, looked after your tenants, then you should be ok.
Chris Gray is CEO of Your Empire, a buyers’ agency which builds property portfolios for time-poor people. Chris is a qualified accountant, buyers’ agent and mortgage broker.
This recession is like no other – a recession caused by a health crisis – that has resulted from the severe restriction of people going about their lives and shutting down countries’ economies.
Whilst it has been quoted often in reference to the Great Depression of the late 1920’s and early 30’s, in terms of the sharp economic contraction and increased levels of unemployment and underemployment, the subsequent easing of restrictions is resulting in a bounce in economic activity, which will more than likely result in a very short recession of only two quarters (March & September).
The impact of our success in managing this health crisis as well as we have, has also benefited the prospects of the property market. The dire predictions of property price falls of 20%-30% or more, are now past. Just this month, Westpac-Melbourne Institute’s Consumer Sentiment Survey showed an optimistic reading of 107.6 – where a reading above 100 indicates that more people surveyed are optimistic than pessimistic that ‘now’ is a good time to buy.
Assuming we manage the pending second wave of COVID-19 infections well, and on the back of historically low interest rates and multi-levels of government stimulus, it’s looking more and more likely that any price correction may only be as low as 5%-10% across the majority of markets. In fact, some property markets across Australia will be enjoying price growth as early as the end of this year, with most markets experiencing price growth in 2021 on the back of a stronger economy, improving employment and increasing buyer demand.
That said, it’s not all going to be smooth sailing. Highrise and median density apartment markets are going to suffer from low demand, increased supply and high vacancy rates as a result of less rental demand, which will put pressure on valuations of this apartment stock in the next six to 12 months.
Ben Kingsley is the co-host of Australia’s number one Property Podcast – The Property Couch, best-selling author and founder of Empower Wealth Advisory.
To work out where property prices are headed we need to look at the fundamentals of why people invest in property against the alternatives:
- Cash. With the cash rate being so low then having money in the bank can actually be sending you backwards when inflation is applied.
- Commercial Property. Investment in office space with the rise of remote working could be fraught with issues as with retail property investment.
- Shares. Throughout the major times of instability the unpredictable nature of the sharemarket has many investors looking for safe harbour in residential property.
So who will be buying and selling (and renting) based on the above?
- Late Boomers 60-65’s. Those close to retirement who have lost 30%+ on their superannuation with their exposure to the sharemarket and are worried about the potential of property price drops may opt to downsize early.
- Early X’s. Those X’s who have grown children who have been hit with a reduced income due to employment issues may find their children want to move back home. With this rise of ‘AirBnB of Mum and Dad’ this group may absorb those larger properties the Boomers vacate. We will likely see the rise of intergenerational living – at a distance. This means bigger homes and even separate residences on the property such as a granny flat or apartment over the garage etc.
- Late X’s. Based on recent surveys more than 70% of people would prefer to continue working from home for more than 50% of the week and this opens the opportunity for moving to tree and sea change options, typically within two hours of the CBD.
- Coupled Millennials. First home buyers in couples will be tempted by grants, concessions, the First Home Loan Deposit Scheme and HomeBuilder scheme and the potential to enter the market through house and land packages.
- Millennials. Those who are not ready to take that next step (or who don’t want to move home) will move even closer to the city and closer to community-connected living. This could become even more affordable due to the increased number of vacancies exacerbated by the short-term leased properties being transitioned to long-term rental.
All in all there will be increased movement in the property market. However many homeowners will see the potential of staying put and renovating their homes (with or without the HomeBuilder scheme) to create home offices and even converting living spaces over garages for returning children or parents.
Investors will start seeing opportunities in all these markets as those who need to move will be open to negotiating on price. The market will be vibrant and this optimism will see a steady improvement in property prices.
My mantra has always been ‘buy in the best location you can afford and when you can afford it’ and now is no different. If you are buying for a 10 to 20-year horizon, the correction that may eventuate over the next one to two years will be for many in hindsight the time they should have acted.
Jane Slack-Smith is the Director of Investors Choice Mortgages and Founder of Your Property Success online education. She is also the author of Your Property Success with Renovation and co-host of the podcast Your Property Success and The First Home Buyers Show.
Main image source: Pachai Leknettip (Shutterstock)