It’s been roughly 4 to 5 weeks since the announcement of lockdown and I believe we are getting adjusted to life indoors.
By looking at the recent number of confirmed cases it appears that the pandemic here in Australia has peaked out and starting to decline day by day. I guess like me you can’t wait further to get back to our previous normal lifestyle.
Having said that we as a human race have seen many such pandemics including financial turbulences in the past and we have successfully overcome the challenges. Below are few such scenarios.
- Bird Flu 2015
- Swine Flu did in 2009-10
- The GFC (Global Financial crisis) 2008-2009
- SARS 2002-2003
- September 11th in 2001 (A Cowardly terrorist attack)
Australian Property Market Behaviour During Previous Pandemics and Global Economic Crisis – (Short Term Impact)
Now let us look at how the property market in general has behaved in the past. Secondly, there are 15,000+ markets in Australia, that will all move slightly differently.
Of course, markets have seen a temporary price falls for a quarter or two before picking up and surpassing the previous highs.
Like always we could possibly see a price dip between 3% to 8% before picking up.
- 1982 – aids epidemic – 3.1% price growth
- 1983 – negative gearing abolished – 16.6% price growth
- 1985 – capital gains tax introduced – 6.6% price growth
- 1987 – stock market crash – 23.7% price growth
- 1989 – interest rates hit 17% – 0.6% price fall
- 1991/92 – gulf war and recession – 3% price fall
- 1999 – Y2K bug – 11.9% price growth
- 2000 – GST introduced – 15% price growth
- 2001 – 911 terrorism – 15% price growth
- 2002 – Bali Bombings – 0% price growth
- 2004 – Tsunami – 4.4% price growth
- 2008 – GFC – 5.4% price growth
Current Economic Situation Compared to 2008 GFC – (Medium Term Impact)
- 9% Interest rate (RBA Cash rate of 7.25%)
- Mortgage Stress – Liquidity Challenges
- 2.5% to 3% Interest rates (RBA Cash rate 0.25%)
- Mortgage Holiday – No Defaults
I would also like to make a point that Australia was one of only three developed nations that were not hit by the recession in 2008 GFC crisis.
To combat the current situation both the federal and state governments have announced a whopping $331.6 Billion stimulus or 16.6% of GDP.
Ranging from Wage subsidies to businesses, Jobseeker payment to householders and land tax relief for landlords from NSW state government.
These swift measures will reinvigorate the economy and prevent a recession.
As this would boost spending and spending increases demand, which leads to a rise in employment rate followed by an increase in household income.
A Paradigm Shift to Negative Interest Rates Policy – (Long Term Impact)
Yes, you read it right Negative Interest Rates. Sooner or later we would be talking about the positive interest rate and negative interest rate rather high-interest rates or low-interest rates and vice versa.
Not very far from now, Australia would potentially need to adopt a negative Interest regime like what we are seeing in Japan (-0.1%), European (-0.5%), Switzerland (-0.75%). Germany has announced they are moving to (-0.31%) Interest rate. Mr: Donald Trump seemingly encouraging The Federal Reserve to adopt a Negative rates policy.
What is a negative rate policy?
Negative interest rates first appeared in 2009, when Sweden cut its rate to (-0.25%).
Conceptually interest rates are generally thought of as the cost of borrowing money. Central banks raise interest rates to cool off an economy that’s close to overheating. Negative interest rates on the other hand, are seen as a way to stimulate an economy.
In other words, a negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.
This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.
This will reduce the costs of borrowing for companies and households, driving demand for loans and incentivizing investment and consumer spending.
Studies have found that this has resulted in property price appreciation.
Like always with any pandemics or global economic crisis in the short term the property markets will certainly correct a bit but the medium and the long term looks for the Australian property market looks robust.
It might be a good time for you to have a check at your existing mortgages to look at refinancing options as there are several deals in the market and save on your outgoings or look at restructuring your loans with a mortgage broker so that you’re ready to make your next move in getting an investment property once the current dust settles down.
I am more than happy to assist you if you’re looking at buying your owner-occupied or investment property.
As an astute property consultant in Sydney, I would be more than happy to meet and discuss the possible property investment strategy suitable for your current and future needs.
In the meantime, please have a look at the property options you can explore with me.