Just when we thought we were all moving on from 2020, it now seems that the general Sydney area will be locked down for an extended period of time.
So how will this affect the Sydney property market?
The lockdown will place restrictions on open home viewings and auctions. Some vendors may defer their listing until the restrictions are lifted. This will cause a decline in the level of activity. However, similar to the restriction period of 2020, we expect Sydney property values to hold. Once the restrictions are lifted, property prices should then continue their upward trend, albeit at a slower rate.
Short-term economic downturns usually provide opportunistic times to purchase property. Furthermore, waiting for the economic downturn to pass usually results in buying in a period of strong demand and growth rates.
So when is the right time to buy property?
Over the last 30 years, we have experienced
- Black Monday – 1987
- A recession that we had to have – 1990
- Dot-Com Bubble – 2000
- 9/11 – 2001
- Global Financial Crisis (GFC) – 2008
- Now COVID-19
History has shown that during these periods, property values tend to stagnate with low or potentially negative growth. However, immediately after the economic downturn period, history has also shown a dramatic spike in the growth of the local residential property markets. This is demonstrated by the attached graph provided by one of our investment property research providers, Blue Wealth Property. (They have used data sourced from the ABS and UNSW).
Effectively, what happens during economic downturns is that property markets go through a period of hibernation.
The good news? Approximately 70% of Australian housing is occupied by their owner, which means these homes are not investments the way shares and other financial assets are. Demand for housing isn’t directly shaken by poor performance in the stock market because at the end of the day, you still have to go somewhere after a day’s work. Property is also slow. Even when the economy is in turmoil, you can’t just sell a house on an impulse like you can with shares. Spur-of-the-moment decisions (such as a decision to sell) are followed by weeks or months of a sales campaign.
As is evident from the provided chart, not all property markets act the same way at the same time. Nevertheless, what Sydney, Melbourne and Brisbane have in common over the past 40 years is resilience in the face of economic uncertainty. Further, economic crises are often followed by particularly strong residential property performance.
Often, this is a function of both undersupply and credit, as was the case in Sydney after the GFC. With the supply of new housing already reaching a critically low point, one of the most significant impacts of the COVID-19 scare on the real estate market could be further undersupply, especially if rates of immigration are stimulated by those who feel Australia is a safer place to live. In a record-low interest rate environment, this could place more upward pressure on property prices once COVID-19 is under control.
What this demonstrates is that times of economic downturns usually provide opportunistic times to purchase property. Furthermore, waiting for the economic downturn to pass usually results in buying in a period of strong demand and growth rates.