For many people, thinking about their long term future may be difficult when the short term outlook can appear so bleak. Yes the impact of COVID-19 is changing so much about the way we live and work, but for those who are able to focus beyond this pandemic to “the other side”, there can be a low risk way to move forward if you have been considering investing in property, and it is about quantifying the risk and taking a long term approach. This article explains how to invest in property during covid-19 … with minimal risk.
Firstly, as we focus solely on Brisbane Property Markets, the data that is referred to below is relevant to Brisbane only. Remember there are many different property markets around our country, so it is important to understand local numbers and apply these to your investment strategy.
What we are seeing at the moment in Brisbane, is that there has been a significant decline in consumer sentiment which has resulted in a very large fall in real time buyer demand for property. This has occurred very quickly in the space of less than one month. Whilst there are still some home buyers in the market, many investors are sitting on the sidelines taking a “wait and see” approach.
Since the World Health Organisation declared that the novel coronavirus (COVID-19) outbreak became a global pandemic on March 11, 2020, the number of cases around the world rapidly increased. On that date, Australia had a total of 127 confirmed cases which has since escalated to a total number of 6,444 cases as at 15th April 2020. Across all of Queensland we had 2 cases on March 11, 2020 and as at 15th April 2020 we had a total of 999 cases. More importantly though, is the fact that over the previous 11 days since 5th April 2020, Queensland saw only 92 additional cases, averaging just 8.3 new infected people per day across the entire State. This looks very promising indeed.
But you may be wondering how to even consider an investment in property at this time – given the uncertainty that surrounds us. You may also be glued to the news headlines whereby journalists are consistently publishing articles about “Australian Property Markets set to lose value due to Coronavirus Impacts”. But is this true? Will this really happen? And remember Australia is not one property market!
It is almost certain we are heading into a recession here in Australia, so let’s examine what happened to property values during the last recession in our Country where we notched two consecutive quarters of negative GDP growth in 1990-1991.
Nationwide, house prices were fairly flat in the lead up to the recession, but even before the recession ended, house prices began to increase which demonstrates that the relationship between house prices and economic growth is not direct and simple.
Now, let’s look at Brisbane compared to Melbourne at that time. Melbourne bore the brunt of the last recession with house prices falling more than 6% during the recession, whereas Brisbane did quite well over the same period.
So, the idea that housing markets around the country all react differently at different times, is not foreign and the data above shows that there are many different markets around our country and they all cycle in different ways – even during a recession. Also, the cause of a recession is likely to hit different property markets in different ways and it is important to focus primarily on the underlying fundamentals for each investment area – even in times like now.
In Brisbane, we have been moving through a period of huge buyer demand since the start of 2020 and we were definitely seeing real time price growth in some suburbs due to the competitive seller’s market that we were in. Now the tide has turned, and we are seeing opportunities where we may be able to negotiate on quality properties without the depth of buyers creating such a high level of competition.
Of course, for an investment property, it is also important to understand the ability to secure a tenant to lock in your rental income as well. To date, we have seen continued rental demand from tenants and although there has been a softening of rent prices achieved according to local Property Managers, this can be quantified, accounted for and therefore planned as part of an investment strategy.
Say, for example, 2 months ago the rent that could be achieved on a property was $500 per week and now that same property might be able to secure a stable tenant for just $450 per week. We can quantify that difference to be $1,300 over a 6 month period.
However, imagine being able to secure a property for $10,000 less than what we might have had to pay when competition was so tough just a few weeks ago? I’m not suggesting that property prices are falling here in Brisbane, as we have seen no evidence of this to date. But we are seeing some motivated sellers and a lot less buyers, so it gives people more scope to negotiate!
We must all remember that COVID-19 will come and go. There is no denying that. We also know that Australia, and especially Queensland, is doing so well. Commentators around Australia are reporting a “V” Shaped recovery for the economy once we get through this health crisis and then the Brisbane property market is going to be driven by record low interest rates, pent up demand and underlying fundamentals where there is a shortage of supply and a growing population needing housing. We will also have a huge number of properties that will be either cash flow neutral or positively geared due to our relatively high gross rental yields compared to Sydney and Melbourne. Our Company have been receiving new inquiry from investors wanting to move “once things improve”. The hardest part for those sitting on the sidelines right now will be trying to determine when the “right” time to buy will be. How can we determine the perfect time to enter the market right now?
What we do know is that when the majority of buyers determine that “things are better” the competition will be fierce and we will return to a seller’s market very quickly where the extent of the buyer demand determines the purchase price. The opportunity is between now and then for those that want to go against the majority and focus on the long term opportunity, whilst safely quantifying the short term risk. Providing your income is secure and you have adequate financial buffers in place there may never be a better time to secure an a-grade investment property here in Brisbane!