Should you invest in property this 2020 while there is a pandemic?
As people the world over panic and the economy grinds to a terrible halt with Australian property experts painting a grim future for the property market, you most probably have set aside your plans to invest in property.
If you’re watching the property market closely though, you also probably heard of other experts saying the exact opposite thing. So, should you or should you not suspend your plans to invest in property indefinitely?
The Australian Property Market in 2020
Don’t let conflicting reports you hear about the property market muddy the water. Pandemic or not, what you hear in the media is the average condition of all the properties in the country.
Keep in mind that there are about 8,800 suburbs in Australia. This is why there is no “one property market,” so sweeping statements you hear are typically just that.
If you want to accurately measure the impacts of a crisis on the property market, checking how it performed in the past is worth the exercise.
Check the historical responses of property to economic crises and check the particular area you want to invest property in. As it is, stock market crashes and economic recessions aren’t always precursors to a decline in housing values. See the graph below.
As you can see, the effect of economic shocks on property market varies.
It’s worth noting that with the COVID-19 pandemic killing most industries today, various government stimulus packages were also made available to individuals and businesses. As a property investor, this is good for you.
Why 2020 is the Time to Invest in Property
Government incentives mean property values won’t have a significant drop now or in the near future. For instance, the JobKeeper positively affects the unemployment rate. It boosts economic activity and protects the rental market.
On top of this, banks are also doing their part to prevent declines in housing values.
You may also remember that even before COVID-19 hit, Interest Rates have reached an all-time low in Australia.
Today, you can get a fixed 2-3 year rate three fourths less than it was just ten years ago. Simply put, even with a global crisis, there are cash-flow positive properties in Australia still. This is probably the reason why latest data shows more first home buyers will invest in property this year. For investors looking to get on the property ladder, this junction in time presents a great opportunity.
What to Do Before You Invest in Property
There are a few things you do when looking to invest in a property. First, you should examine the supply and demand in the area you want to invest in. Second, make sure you pick the right kind of property for the area.
Supply and Demand
In any market, spikes and corrections happen, but the core forces that always influence property prices are supply and demand.
Because of the pandemic, homeowners today are pulling their properties off the market. This certainly affects the supply side of the market, leading to high demand and above reserve auction prices, as recent auctions show.
But we can also look forward to high supply in the near future. Overseas immigration is expected to reduce by about 85% the demand in the residential market. So, all in all, property market is slowing down towards the equilibrium price.
Type of Property
What type of property should you invest in and what type should you avoid?
A lot of property investors are inclined to invest in city apartments because of the impression that these bring in a steady supply of tenants. This is generally the reason why most apartment buildings are about 80% investor-owned.
This is fine, but when economic shifts that result in unemployment happen, high vacancy rates typically follow. Owners then resort to heavy discounts and of course, this affects housing prices.
So when you’re looking to invest in property, be sure to check that the area you want to invest in does not have an oversupply of rental stock, but instead is high in owner-occupied homes. An area with 10 to 30% rental properties with stable tenants, as opposed to transients, is best.
Also, consider getting dual income properties. These produce much higher rental yields and lower rental vacancies.
Invest in Property Now!
The right time to invest in property is any time you can afford to. That is, if you have a stable source of income, your goal should always be to create wealth and property should be considered if appropriate to your circumstances.
Remember that even when COVID-19 lurks everywhere, threatening your peace of mind, opportunities to own an investment property do not go away. In fact, under the right circumstances, crises provide the best time to own a property or build your portfolio.
In Australia today, the government is certainly doing its part to help individuals and households weather this pandemic by providing stimulus and low-interest rates. All these make for a good opportunity to save money and invest in property.
Do you need help getting into the property market or growing your property investment portfolio? for your property investments? Consult with us today. We’re always ready to help.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Chan & Naylor, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.