It has been a while since we spoke about property – there have perhaps been other more pressing things to discuss. But property is still very much worth thinking about, even if, for now, the state of the property market is particularly inconclusive. It is not really a time for immediate action, but it is a good time to think about what your medium to long-term response to the property market will be.
Step one of thinking intelligently about residential property is knowing the basics. So, let’s recap some of those. Housing serves one or both of two functions for most of us. The first is, of course, to give us somewhere to live. The second function, for many people, is as an investment. Sometimes, of course, the same people use property for both reasons.
According to the Australian Bureau of Statistics figures for 2017-18, Australia had around 9 million households in that year. Of these, 32% rented their home (including 3% of all households who live in public housing). 30% owned their home outright, while 37% owned their home with a mortgage. According to the same research, around 20% of all households own a property other than the one that they live in. This figure includes a small number of holiday homes, but it is mostly investment properties that these people hold. That means Australia has around 1.86 million landlords.
1.86 million sounds like a lot of households. But the reality is that most of these residential property investors own relatively small holdings – 73% of them own a single investment property, while only 5% of these investors owned four or more properties.
So, most people who own property do so to live in it, with around 1.35 million of these people also owning a single property in which they do not live. Australia has relatively few large-scale property investors. The colloquial term ‘mum and dad investors’ is a reasonable description of the average Australian property investor.
The impact of the Coronavirus on the residential property market is not yet clear. Corelogic reported modest rises for the month of March, which is the latest month for which we have figures. But the economic impact of the Coronavirus had not really taken effect in March. It is unlikely we will see price rises for April and the coming months. Falls are more likely.
Property prices are always a function of supply and demand. While we can expect demand to fall, it is a fair bet that people will also be reluctant to sell property at this time, especially if their observation is that prices have fallen. It is therefore quite possible that any fall in demand will be, at least in part, offset by a fall in supply.
That said, it would be a brave person who assumed that prices won’t fall at all. Given that the entire economy will shrink, property prices will almost certainly come off the high prices that were being reported for March 2020 (record prices in many places, in fact).
Of course, falling prices are not bad news for everybody. That is the whole point of markets. People who have yet to purchase a property will welcome a fall in purchase prices – especially if their income has not been negatively affected by the Coronavirus and its impact. The range of “people who have yet to purchase a property” might include people who are prospective property investors. People who are yet to invest, or who own just one residential investment property, may also benefit from any downward move on prices if their intention is to increase their property portfolio.
Time will tell and, if you thought predicting the share market was hard at the moment, be assured that the property market is even harder to predict, especially long-term. We can be sure, though, that this is a good time to keep a close eye on the market. If the idea of property investment appeals to you, or if you are yet to buy your own residence, this is a particularly good time to think about how you might use these next few years to add to or commence your property portfolio.
So, as ever, we encourage you to get in touch with us so that we can ‘run a ruler’ over your particular situation to see whether and how you can start to position yourself to make some good personal decisions in the midst of all this uncertainty.
