Posted on Wednesday, March 18th, 2020 in by Matt Garmony
COVID-19
In mid-March of 2020, the Coronavirus (COVID-19) has had a major impact on the world economy. The Australian newspaper reported on 13 March 2020 that according to JP Morgan, “A global recession caused by coronavirus is now likely.” With the lock-down of numerous European countries, travel restrictions between the United States of America and Europe and self-isolation requirements in Australia for residents returning home from overseas, there are significant effects on the world economy. Major sporting events have been postponed or cancelled and some schools have already been temporarily closed. The government has imposed restrictions on mass gatherings of over 500 people in an attempt to contain the virus. This has caused the global share markets, including the Australian Stock Exchange to record some of their greatest declines since the global financial crisis and the 1987 stock market crash.
The global governments, including the Australian Government, have implemented fiscal stimulus packages to support the labour market and their respective economies. We expect the sharp decline in the global economy and share market will flow through to the property market and we are anticipating a decline in all sectors of the property market. The extent of the decline is unknown as we head into an uncharted economic climate.
REAL PROPERTY
Due to the time lags of real property markets, the impact from the last 3 to 4 weeks economic events, as a result of the COVID-19 global pandemic, has yet to produce results in the real property market. However real estate investment and property trust shares have fallen up to 11% recently. Shares in property development companies such as Stockland and Lendlease have experienced recent falls of approximately 15%.
Prior to the last 3 to 4 weeks, the Perth residential property market appeared to have reached the bottom of the market cycle with REIWA reporting the median house price has remained steady for a month or so with even some Perth suburbs reporting slight increases in the median house price. REIWA’s latest statistics indicated that Perth’s median house price has relatively stable ranging between $480,000 to $500,000 for the past 12 months. REIWA’s also reported the residential vacancy rate in March 2020 is at 2.2% which is the lowest since March 2013 with the median weekly rent at $360 which is the first increase in approximately 3 years. REIWA has stated “One of the reasons we are seeing this is because the construction of new homes has slowed significantly since 2016.”
With the current and predicted further downturn in the WA economy, the previous positive signs in relation to improvements in the WA Mining industry and WA’s economy are likely to decline and it is highly likely the property market will follow with declines across all property market sectors. The extent of the property market decline will depend on the impact of the COVID-19 and the time frame until the virus risk declines and business and consumers can return to their normal routines. Our licensed valuers are constantly liaising with real estate sales and leasing agents to gauge market conditions on a week by week basis.
RBA & MONETARY POLICY
At the 3 March 2020 Board meeting, the Reserve Bank of Australia (RBA) decided to lower the cash rate by 25 basis points to the new record low of 0.5%. The RBA previously cut to the cash rate by 0.25 basis points in October 2019, June 2019 and July 2019, respectively. In a statement by Philip Lowe, the Reserve Bank Governor, stated that “The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected. Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end. It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.” Mr Lowe also noted that “Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption.” The Governor concluded that “The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity.”
GARMONY PROPERTY CONSULTANTS
Our company has plans in place to minimise the risk to our staff of contracting COVID-19 and we also have contingency plans for our licensed valuers to continue to operate from remote locations. Our valuation business is currently operating as normal and we will continue to provide our clients with prompt property valuation advice.