COVID-19 Q&A

The impact of coronavirus on the property market explained

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YOUR QUESTIONS

  • How will the coronavirus impact the property market?
  • How will it effect the economy?
  • Is it a good time to buy?
  • What if I can’t work or lose my job?
  • What about the share market?
  • How can I protect myself?
  • How is AllianceCorp supporting the community?
coronavirus property questions

HOW WILL THE CORONAVIRUS IMPACT THE PROPERTY MARKET?

It’s indisputable that major world events impact the property market. It’s important to recognise, though, that in most cases viruses and other catastrophes do not have a long-term negative impact. 

Here are some of the major world events of the last two decades:

  • Asian Bird flu did in 2015
  • Swine flu did in 2009-10
  • The GFC came and went in 2008-9
  • As did SARS in 2002-3 and
  • September 11th in 2001

These all affected the economy but only in the short-term. And remember, building a successful property portfolio is about playing the long game. If you want to buy and sell a property in the next year, then yes, that is unlikely to produce the desired results.

A good point of comparison for the current coronavirus is the Spanish Influenza of 1919. Here are some of the similarities between COVID-19 and the Spanish Influenza:

  • Both created an atmosphere of fear
  • Both led to people stockpiling resources (eg. food, toilet paper)
  • Both can cause fever, coughing and aches, and both can lead to pneumonia.
  • Falling interest rates 
  • Significant drop in share prices
  • The population grew then and continues to grow now. In post-war Australia, annual growth rates averaged 2.1%. The current growth rate is around 1.5%
  • Travel bans and quarantine rules were brought into effect, then and now

During the Spanish Influenza in 1919, 15,000 people died in Australia. The property market also increased by more than 10% each year until 1921. There is a strong likelihood that, given our current population growth rate, the property market will continue to increase.

Some key differences between Spanish Influenza of 1919 and COVID-19 of 2020:

  • Our healthcare system has vastly improved
  • The internet means panic can spread more quickly
  • Fast spreading news also means people can stay informed on how to best protect themselves – full details here
  • COVID-19 seems to be targeting different population groups (the elderly are most vulnerable)
  • Many who died from the Spanish flu were killed by secondary bacterial infections. We now have antibiotics and more knowledge about infections

Historically, major world events – particularly viruses – do not lead to long-term declines in the property market.

WILL MY CASH FLOWS BE IMPACTED?

There is nothing to indicate that there will be significant changes to your cash flows. If anything, you are most likely to see a reduction in your interest payments. The interest rate is already at a historical low and there is strong likelihood that the RBA will make further cuts to stimulate the economy.

The majority of our clients already own cash flow positive property due to these record low interest rates. On a $500k mortgage, if interest rates were to fall another .5% this could increase your cash flows by as much as $30 on your investment property. It would also reduce your mortgage payments by $208 a month.

WHAT IF I CAN'T WORK OR LOSE MY JOB?

When investing in property, you should always have a Master Facility to manage your cash flows. This way, your personal cash flows are independent of your investment property cash flows.

We also recommend that if you have personal debt such as a home mortgage, that you also keep additional funds in your offset facility for situations like this.

In the event that you are not working, your property may already have positive cash flows. Low interest rates, like the kind Australia is currently experiencing, can also lead to cash flow positive income. If it doesn’t, the Master Facility and the buffer cover any shortfall. If you have significant funds in your buffer you can also access these funds if you are between jobs.

Below is a Property Investment Analysis for a 2 bedroom townhouse in Brisbane, currently cash flow positive.

property investment analysis positive cash flow
australian price index of established housing during GFC
History-of-Pandemics-covid-19-infographic

HOW WILL IT AFFECT THE ECONOMY?

It’s indisputable that major world events impact the property market. It’s important to recognise, though, that in most cases viruses and other catastrophes do not have a long-term negative impact. 

Here are some of the major world events of the last two decades:

  • Asian Bird flu did in 2015
  • Swine flu did in 2009-10
  • The GFC came and went in 2008-9
  • As did SARS in 2002-3 and
  • September 11th in 2001

The bushfires over the summer period resulted in major loss and also impacted the economy. COVID-19 will have an effect on the economy with many normal supply chains disrupted, face to face dealings being limited and many businesses now working remotely.

The government has identified these potential effects and has announced an economic response totalling $17.6 billion.

The stimulus plan includes:

    • Instant asset write off threshold from $30,000 to $150,000 for businesses
    • A one-off $750 stimulus payment to pensioners, social security, veteran and other income support recipients and eligible concession card holders
    • The Government is also offering administrative relief for certain tax obligations, including deferring tax payments, on a case by case basis
    • Eligible apprentices and trainees employers can apply for a wage subsidy of 50 per cent

Referring to the GDP graph, you can see scenarios formulated by Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, shows that the economy could start recovering within 6 months.

economic response
Australia GDP Growth Scenario

IS IT A GOOD TIME TO BUY?

Here’s one of the little known truths about investing: If you have a long-term strategy in place, timing has little impact. It’s time in the market, not timing the market that matters.

Those who put off investing because they want to wait til the market ‘bottoms out’ are not likely to be able to identify when the market does hit the bottom. Even the experts are not able to perfectly predict where the market is going to go. 

Investing in property should be a business decision, not one made based on changing emotions. Choose a proven strategy for financial success and stick with it. If you are looking to buy a property for a short period, such as twelve months, then now is probably not the time.

But if you are looking to build a property portfolio and invest for the long term, then now is a great time:

  • Buying now can mean better negotiating power. As little as 5% can mean a $30k saving on your investment. Already, many builders and developers have reached out to us offering free upgrades for our clients (a saving of approximately $15k).
  • Interest rates are at a historic low and likely to drop further
  • Australia’s population continues to grow, increasing demand for property
  • The volatile share market will likely see more investors turn to property
  • The government’s new home owner scheme means there are lots of first home owners rushing to market
historical graph

WHAT ABOUT THE SHARE MARKET?

The property market is far less volatile than the share market. There have been 12 corrections of 10% or more in the Australian stock market. The most recent drop is around 17%. In the last decade, well located properties have seen their value double.

History of Australian share market 1900-2010

HOW IS ALLIANCECORP SUPPORTING THE COMMUNITY?

  • We are encouraging our staff to follow government recommendations regarding health and safety.
  • We have cancelled our upcoming live events to limit face to face contact – keep an eye out for some exciting resources we will be releasing in their absence.
  • We are providing information to investors so they can make informed decisions and ultimately stimulate the economy
  • We are running a special offer – a one on one consultation valued at $500. 
webinar

FREE 1 ON 1 CONSULTATION

This is a bespoke strategy session with a Senior Property Coach where they will assess your current goals and financial situation to develop a tailored Property Wealth Plan for you. At this session, they will also reveal our coveted Master Facility strategy.

We have helped over 1071 clients build profitable property portfolios. You can hear from our clients directly here.

In times like these, working with experts who have a strong understanding of property investment finance is essential. It’s the difference between positive cash flow and significant financial loss. Leverage off the knowledge of successful property investors by booking in a consultation.

A 1 on 1 consultation usually costs $500 and runs for 1.5 hours, ensuring there is adequate time to address all questions. However, to support Australians who want to take advantage of this unique opportunity presented by COVID-19, we are offering this consultation service free of charge for a limited time.

Our consultations usually book out quickly. Get in quick to avoid missing out. 

REQUEST A FREE ONE ON ONE CONSULTATION