The year 2020 has started in a way we will certainly remember, with the disasters of catastrophic bushfires followed in succession by the Coronavirus (COVID-19) having already impacted around 15% and 28% of Australian businesses respectively (Roy Morgan Snap SMS Survey). Based on this survey, the industries which are already affected include manufacturers, education & training businesses, accommodation & food services, property & business services. The respondents to the survey advised that the Coronavirus had impacted their businesses and supply lines, imports and exports from and to China (in particular). With the forward bookings from Chinese tourists in serious decline, the impact on stock-market confidence, lower foot traffic in retail centres and service impacted by the global trade slowdown has the potential to impact Australian property values.
ASX 200 dropped 8.9% (Source: ASX, 2nd Mar 2020) since the WHO declared the Coronavirus outbreak as a global health emergency, the Australian dollar continues at its decade lows.
To what degree would a global Coronavirus epidemic impact the Australian property market? Analysis of the Severe Acute Respiratory Syndrome (SARS) outbreak in 2004 resulted in the global GDP falling nearly 5% for one quarter but recovered with accelerating growth in the following quarter in part due to the stimulus program by the Chinese Government. Analysis by Bloomberg economists expected that once the coronavirus is contained, the world would probably see a “V-shape recovery”.
The Coronavirus influences on the Australian dwelling markets may see a softening of the prices and reduced foreign investment demand (especially from China). At the first RBA meeting of 2020, the interest rate was held at the record low of 0.75%, motivated by the recent devastating bushfires and the uncertainty of the Coronavirus outbreak. However, a reduction of the historically low interest rates may further fuel the demands of home buyers and investors, boosting the property values. If the virus worsens in China, Chinese investor’s interest in Australia housing market is likely to increase due to the perception of Australian property as a safe haven. although, the Chinese Government would probably respond with more restrictions to overseas funds transfers (currently allowing Chinese nationals a foreign exchange quota of USD $50,000 a year).
With less Chinese exports and travellers coming into Australian markets, the retail and hospitality sectors would need to prepare for a challenging quarter. If the virus epidemic was prolonged, the declining foot traffic would likely affect the retail property assets values, in particular, the CBD assets in NSW where foreign shoppers frequent. A serious epidemic and resultant downturn in the markets may contribute to widespread retailers’ bankruptcies, significantly impacting the retail occupancy rates already under pressure.
Despite these potential impacts, when considering the vulnerability of the already volatile share market to the impacts of the Coronavirus, a lack of alternative investment assets made channel investors toward residential property in Australia preferring tangible “bricks and mortar” in uncertain times.
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