The world is in the midst of the COVID-19 pandemic. But how negatively has the lockdown affected the economy and how long it will take to recover?
Some property investors are anxiously waiting to see how this crisis will affect the property market. The good news is that Australia’s property market has always been resilient, even after a recession. In fact, you might be surprised to learn that Australian property prices have increased in the years after recessions, rather than decreased.
Here’s why property is likely to remain a sound investment post-COVID-19.
Australia’s property market has always bounced back
Australia is fortunate to enjoy a robust and resilient property market. Even after a recession, our property market bounces back quickly and strongly.
Research by Propertyology found that property markets across the various states grew by as much as 20% after our last national recession (1990-91) and the Global Financial Crisis (2008-09).
The Property Investment Professionals of Australia (PIPA) researched property growth in the aftermath of four economic downturns between 1973 and 2008. After each recession, prices were higher after five years than before the recession. Here’s what PIPA’s statistics show:
- Five years after the 1973-1975 recession, house prices in Sydney grew by up to 100.7%.
- Five years after the 1982-1983 recession, house prices in Melbourne grew by up to 67.7%
- Five years after the 1990-1991 recession, house prices in Darwin grew by up to 47.3%.
- Five years after the GFC, house prices in Sydney grew by up to 39.7%.
If past statistics are a reliable indicator of future prospects, then the outlook for property investment is positive.
How will COVID-19 affect the Australian property market?
ANZ research forecasts a peak-to-trough decline in property prices of 10% during 2020 and 2021. Sharp declines are expected in Hobart (11.2%), Melbourne (9.5%) and Sydney (8.1%). The Perth market is expected to perform the best with a decline of only 0.2%. Growth should begin turning positive again towards the end of 2021.
It’s normal for property prices to decline during a recession, but the long-term trend in Australia has always been upwards. The same is likely to happen with the COVID-19 recession.
The HomeBuilder stimulus program
To avoid a long-term slump in the property market, the Australian Government announced a $680 million housing package to stimulate the residential construction sector.
The HomeBuilder program offers grants of $25,000 to eligible owner-occupiers who are:
- building a new home to the value of $750,000
- doing renovations costing between $150,000 and $750,000
The program runs until 31 December 2020 and should help support the residential construction market until the tide turns.
Based on the historical data and short-term projections, property investors have every reason to be cautiously optimistic. While nobody can be certain of what the future holds, the odds are good that if you buy a quality property and hold it for the long-term, you should enjoy capital gains in the future.