COVID-19’s rapid global expansion brought about unprecedented times that have affected nearly every aspect of daily life. As we watch and wonder what happens next, it’s easy to assume the worst.
There’s no doubt that the economy has taken a blow due to isolation rules that have closed down major sectors. It’s been a big change — that’s certain — but there is light at the end of this tunnel.
Despite the uncertainty and stunted economic growth, Australia’s experts are remaining optimistic. A global recession is inevitable, but the effects of any downturn may be hampered for a number of reasons, including the stability of our property market. Australia’s economy could be on the mend as early as the second half of this year, setting up for a strong performance in 2021.
Former Treasury Secretary Dr Ken Henry, who helped formulate the nation’s response to the 2008 global financial crisis, spoke to the Weekend Australian about the economic effects of COVID-19, “One thing we do know is that a shock is always followed by a period of strong growth, including employment growth,” Dr Henry said.
“I’m impressed with what’s come out so far, but I think the government should start planning now for the reconstruction because this thing is going to bounce back quite quickly” [Source: Nation will bounce back with a strong recovery, tips ex-Treasury secretary, Weekend Australian, 28 March 2020].
His sentiments were shared by the RBA in a statement by Philip Lowe, Governor: Monetary Policy Decision:
“Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption.”
Real estate experts are also keeping a positive attitude. Many are acknowledging that the immediate future could see challenges but stress that long term effects will be minimal. The property market should remain relatively strong as these setbacks are part of the property cycle.
“Though the stock market may see reversals, the slowdown is not related to real estate lending, therefore land prices continue to rise out the other side of a mid-cycle slowdown.
“Such market contractions generally prove short-lived before a return to growth and the “second upswing/boom phase” of the longer-term cycle,” says Michael Zaghini of the Mosaic Property Group.
Property expert Michael Mitusik also concurs, pointing out “The long-term view outsmarts short-term thinking. Things that really matter when it comes to the housing market include demographics, work trends, settlement patterns, finance, taxation, regulations, compliance, affordability, and importantly, supply and demand. None of these fundamentals is likely to be substantially altered by the current virus”.
This positive property outlook is buoyed by the lowest interest rates in Australian history, with further cuts set to make home lending easier for owner-occupiers and investors alike. Historically, lower rates have drawn buyers to the market and encouraged investors to hang on to their assets.
In fact, with the current volatility in the stock market, many investors may look to the property market as a more stable investment option. This in turn will boost the property market, strengthening performances and seeing higher capital growth for homeowners across the board.
There’s no doubt that there will be challenges ahead as experts navigate the next stages of this public health crisis, but we have reason to remain positive. 2020 is not over just yet.