Perspective: how the coronavirus is and isn’t impacting real estate

Posted by Luke Graham

Over recent weeks, our attention has been drawn to the latest global health crisis. Millions of Italians are in lockdown, east Asians are being assaulted in London, countries are closing their borders, and Australians… have run out of toilet paper…

Undoubtedly there will be many more people around the world impacted by COVID-19, some of whom we may know. This week’s research blog in no way seeks to minimise that concern, however, it is important to be aware of how the real estate market has been impacted and how it hasn’t.

Currently, most attention has been directed toward responsive markets such as listed shares. Yesterday, the ASX200 (an index for the Australian Securities Exchange) recorded a loss of approximately $140 billion. Yes, in just a single day. That plummeting of market capitalisation returns the index to its position in early-2019 and has prompted some commentators to predict a recession. Some investors are rubbing their hands together and buying fast, others are causing fears of a bear market by withdrawing further from financial markets.

The great thing about real estate is that it’s slower to respond to market hysteria. Selling shares requires little more than pressing a button on your phone or computer, whereas disposing of a real estate asset requires engaging an agent, building a campaign, hosting inspections, negotiating settlement terms, etc.

What real estate is impacted by, however, is the short-term behaviour of the buyer and tenant markets. One particular real estate professional recently remarked that a prospective tenant was a no-show at an inspection, citing fears of contracting coronavirus. An auctioneer noted the decreased prevalence of international bidders for a high-end home in Sydney. These are anecdotal, isolated incidents and offer little insight into how the broader Australian property market will react to this event.

Consider, for instance, the auction clearance rate results from last weekend. Domain reported an auction clearance rate of 81 percent in Sydney, up from 54 percent this time last year and a hike of 4 percent since the first weekend of February (when the World Health Organisation declared COVID-19 a global health emergency). Melbourne, Brisbane, Adelaide and Canberra are also experiencing superior auction performance since WHO’s recent declaration. Additionally, the RBA announced another cut to their cash rate target last Tuesday due to COVID-19 fears, with many lenders passing this discount onto mortgage customers. In the medium-term, it is possible that Chinese investment in Australia gets a further boost as Chinese residents seek a new home after another of a series of pandemics originating from their home country.

Leading public health officials aren’t certain about how this virus will play out, so we aren’t bold enough to make predictions about it either. However, we were recently offered a little perspective. According to worldometers.info, just over 4,000 people have died of coronavirus to this point. The Department of Health estimates more than 3,000 people die from the flu each year in Australia alone. In the United States, this figure is about 10 times higher. Although we should all exercise caution and follow guidelines regarding COVID-19, we must also remember to distinguish between legitimate information and hysteria – just like when the property market is in the media’s lens.

Our tip: as is the case for obtaining accurate information on the property market, defer to the experts for information on coronavirus.

Posted by Luke Graham, on 10th Mar 2020