With the continuing threat of the Coronavirus outbreak causing panic in countries throughout the world, it is important to consider what impact it may have, at a local level, on Brisbane Property Values. We have had a number of people contact us asking what our thoughts are on this topic, so the purpose of this article is to provide our best response. Of course, at the time of writing (March 12 2020) it is too uncertain to assess the impact in the months ahead, and therefore this summary is based on the information available to us at this point in time.
It is being reported that the virus will have a material economic impact on the economy, but it is not clear how large that will be. What we do know is that the combined effect of monetary and fiscal policy should help all of us navigate any difficult period that may lie ahead.
In terms of property, it is important to note that the fundamentals for Brisbane have not changed at all. We still have a huge supply shortage, driven by lower listing volumes as well as a reduction in construction completions. In fact disruption to the supply chain caused by the coronavirus is already causing delays to some projects, further reducing the future supply of new dwellings that are needed to account for the ever increasing population growth that our region is experiencing.
Demand for property is still stronger than ever. On the ground we have seen no slow down in terms of the number of people at open homes, the number of registered bidders at auctions or the number of offers on properties listed for sale by private treaty. Across the board we are still seeing extremely high demand for quality properties in well located pockets within Brisbane.
Additionally, Australia is not one property market. There are markets within Markets and the Brisbane Property Market is actually quite different right now to the other major cities of Sydney and Melbourne.
According to Corelogic Data, our median house price as at 29 February 2020 was $503,265 compared with $872,934 in Sydney (73% higher) and $689,088 in Melbourne (36% higher). Layer that with the average income in Brisbane which is $2,231 per week compared with $2,867 in Sydney (28% higher) and $2,413 in Melbourne (8% higher) (ABS). The proportion of household debt to incomes is therefore a lot greater in Sydney and Melbourne, than it is in Brisbane which provides strong support for our local market in the event of an economic downturn as homeowners are in a much stronger position to be able to afford to meet the repayments on their loans.
The economy is, however, being supported through interest rate cuts and the federal government’s $17.6 billion economic stimulus package announced today. Due to Australia’s prudent economic management in recent years, we are now in a very strong position to support the economy with the necessary stimulus to help us through the months ahead. With the Federal Government’s intention to support jobs, incomes, small business and investment, our national economy should be OK in this time of uncertainty.
These factors can work to ensure the demand for property remains strong and robust. Lower interest rates provide more disposable income to the household sector that can be used for spending to boost the overall economic benefits. They also increase the borrowing capacity of buyers providing a further stimulus for people looking to enter the market.
The property market, especially residential property, is quite different to other markets (such as the sharemarket) because it is not dominated by investors. It makes up approximately $6.2 Trillion worth of Australia’s Wealth being the largest asset class in our country behind Australian Superannuation at $2.7 Trillion and Australian Listed Stocks at $1.8 Trillion (Corelogic). Approximately 65-70% of all residential property is occupied by home owners and we as Australian’s will cut out spending in a lot of other areas before we make the decision to sell our much-loved family homes. Of course, the main purpose of residential property is to provide shelter, and this is a human necessity. Because of the high transaction costs, we do not buy and sell property quickly (like shares) and therefore as an asset class it is less likely to experience price fluctuations in short periods of time.
Whilst this is a serious matter, it is important to remember that illnesses like influenza cause 3,500 deaths, about 18,000 hospitalizations and 300,000 GP consultations every year . In relation to Coronavirus, according to the Australian Government Department of Health, as at 11 March 2020 Australia has 112 confirmed cases including 3 deaths .
Remember the effect of the virus will come to an end at some point. Just like SARS (2002-3) and swine flu (2009-10), it is expected that the Coronovirus will come and go within a relatively short period of time. According to the RBA deputy governor Guy Debelle, “Once we get beyond the effect of the virus, Australia’s economy would be supported by the low level of interest rates, the pick up in mining investment, infrastructure spending and an anticipated recovery in residential construction.” So there is no need to panic, instead taking a common sense long term approach seems like a more logical approach. We got through the Global Financial Crisis – the biggest economic downturn in modern history – so we can get through this.