As the crisis began to take hold during February and March, it became clear that swift responses would be necessary from all levels of government to address the escalating pandemic. Buyers Agent Sydney – Nick Viner uncovers 5 reasons why there won’t be a property crash during these uncertain times.
The subsequent shutdown helped flatten the infection curve while our healthcare industry prepared to address a potentially unstoppable outbreak.
In addition, the strength of the economy came into focus. Whilst we had a robust financial system, rising unemployment was sure to deliver a frightening scenario. Business closures and employees without pay packets were destined to bring our nation to a grinding halt. And expectations were that without some form of support, the economic crash would rival or even eclipse the health fallout.
As March drew to a close, the Federal Government announced the largest economic support package the country has ever witnessed with the $130 billion JobKeeper wage subsidy program being at its centre.
Now, as we sit here towards the end of September, it seems that the extended version of JobKeeper will run to 28 March 2021, but with a new set of criteria. The payment will be reduced from $1500 per employee per fortnight to $1200 per fortnight from 28th September 2020 to 3rd January 2021, and then dropped again to $1000 per fortnight until it’s wound up at the end of March 2021.
For property stakeholders, major lenders were also on hand to help borrowers by offering up to a six-month loan repayment moratorium if requested. Anyone who found themselves struggling to service their loan could get some welcome breathing room.
But of course, those who took up the loan repayment holiday when it was first introduced 6 months ago are now approaching D-day where their original monthly commitments will be reinstated – and the crisis is still with us.
This has had some analysts predicting a dramatic and powerful fallout for the property sector.
On one level, it is easy to understand the arguments for a property crash within the next 3 – 6 months, but if you consider Sydney’s property market more deeply, you’ll find a downturn of Armageddon proportions is highly unlikely.
1. Employment is better than expected
While the July unemployment rate of 7.5 per cent is historically significant, our nation is doing better than many others across the globe.
Unemployment has only crept up marginally since major layoffs at the beginning of the year, and anecdotal evidence shows there are still plenty of businesses open and operating.
While certain sectors will continue to suffer, not all are being affected.
2. People have had time to get their homes in order
The long lead up to the end of JobKeeper and the mortgage moratorium has provided plenty of lag time for households to map out a financial survival strategy.
Most expect that by mid-2021, we will either have a vaccine and/or treatment, or at least have a sustainable approach to living with the virus while operating as a functioning economy.
As such, most households have already taken steps to ensure they won’t simply fall in a heap come the end of the support measures. Those that need to sell down assets or reduce their living costs will have already made plans.
3. We’re too big to fail
There’s no denying there’s a strong political will to keep our economy running and property markets resilient.
Property is a backbone industry in Australia. According to a study by the Property Investment Professionals of Australia, over 51 per cent of the nation’s household wealth is held in it’s 10.3 million dwellings, while Australians trade almost 400,000 properties each year with a total value nearing $250 billion.
Allowing that asset pool to crash in an almighty way is not within the will of our politicians.
4. Banks want to lend
Banks make money by lending and having good borrowers on the books. They aren’t looking to make wholesale closures on outstanding loans.
The suggestion that we will see thousands of ‘Mortgagee In Possession’ sales flood the market just makes no commercial sense.
Besides, the process of winding up a borrower to seize and dispose of assets takes months to years. It won’t be a case of sudden, large-scale foreclosures.
And remember this – we recently went through a banking Royal Commission which saw lending rules tighten so only robust borrowers could secure a loan. These solid clients are unlikely to default soon. And, for of those that purchased well before the commission’s findings, most should be carrying plenty of equity in their property.
5. The Government Stimulus is Working
Kieran, please insert details of all Federal and NSW stimulus packages plus evidence in the form of stats and numbers that such stimulus is working and boosting the economy.
I realise that Australian property stakeholders are in for a rough ride along with the rest of the community, but the suggestion that come March 2021, we are going to see a real estate reckoning just doesn’t bear up in my opinion.