The COVID-19 Real Estate Strategy

Note: The opinions reflected here are as of 30 March 2020 relative to current market conditions resulting from the COVID-19 virus.

If you’ve been wondering whether COVID-19 will have an impact on the Australian property market then the short answer is: Yes, 100%.

The longer answer is exactly how the current situation will affect the market.

Even in the absence of a global health and economic crisis, uncertainty is always a factor in an investment. But on the flipside, there are always opportunities for those in a position to take advantage of some of the ripple effects we’re starting to see amongst the chaos.

Residential impacts

The current stage of the ‘partial shutdown’ has resulted in a drop of around 8-10% in the residential market with some instances of properties being secured at a much lower price and other instances where they are still meeting market value.

Higher value properties always take a bigger hit when prices fall and the current climate is no exception. However, due to the initial job losses being largely in the services, hospitality, aviation, restaurant and health and fitness space, demand for properties at the lower end of the market has also waned prompting some losses in value.

Commercial impacts

If you’re about to sign a lease, STOP! The world has changed and this puts you in an advantageous position to re-start negotiations or even consider buying. Your leverage as a high-quality tenant has just jumped three-fold and your incentive and benefits should increase accordingly. If you are yet to sign, consider pushing out your start dates and revisit your fit-out contract.

Buyers, take a breath. Most commercial property owners are not highly geared (low debt:equity ratio) so may not feel the pinch like a residential owner would, unless of course their tenant goes under and they depend on the cash flow. They are often more sophisticated, with diverse assets, but no doubt they will have taken a hit from a tanking share market. Use the current conditions to hunt around for the vendor who must sell and keep the agent phone calls up. The commercial property market rarely drops significantly so now is great time to buy your own premises.

Can we still attend open homes and negotiate?

Agents are restricted to private sales and private inspections only….for now. But this doesn’t stop you from bidding at online auctions.

Up until 25 March – the day before the restrictions kicked in – auctions were still enjoying healthy numbers of attendees, albeit with only a handful of bidding. Owing to the private inspection and sale process, there will be less foot traffic, less emotion and less agent leverage which means: it’s a buyer’s market. The truth is, agents and owners are nervous (like the rest of us). Be aggressive with your offers and don’t be shy to offer at least 10 to 15% under the valuation range.

Is it possible to pick the bottom of the market?

No.

These are interesting and unprecedented times. If we experience a complete shutdown of the property market, the opportunity to buy (and sell) disappears. A more likely scenario is a repayment freeze on mortgages and if that’s the case, sellers have little incentive to list their asset during an interest free honeymoon period. We may see the best window for buying within the next two to four weeks (assumptive) before the big freeze or possible shutdown as there doesn’t appear to be a problem with supply at the moment. Some sellers have already committed to other homes – perhaps purchased before the impact of Coronavirus was fully realised – and need to move on their assets. There are also others expecting job losses or who may be older and are loathe to wait out the time it will take to recover from any losses. All of these factors means there a several cohorts of sellers eager to get their property on the market ASAP.

If you are keen to take advantage of the current situation (and historically low interest rates) consider the option of refinancing your current assets and releasing equity ASAP before the value of your home drops (because it will).

And, as always, please seek advice from a trusted professional as to whether this is appropriate for you.