Silver Linings For Property In The COVID Cloud

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Undoubtedly, the Coronavirus crisis has brought disarray to Sydney’s rental market along with uncertainty in relation to property sales, particularly in certain areas.  Were it not for coronavirus, back in March 2020, we seemed to be heading into a sustained period of incredible price gains across all markets.

While I agree that the current state of affairs is unprecedented, I also believe the disruption may still deliver some unintended benefits to the Sydney property market.

COVID has become a magnifier bringing the strategies of buyers and sellers and overall market conditions into sharp focus. Those who are learning from the present and adjusting their approaches accordingly look most likely to benefit in the future.

No more universal price gains

A truism we hang our collective hats on in real estate is that property values, on the whole, move upwards with relative certainty over the long term. 

Long-term investors make important buying decisions based on the market cycles, safe in the knowledge that each peak will be at a higher price point than the last. Of course, within this larger cycle are myriad sub-markets, and each performs at their own pace.

In the few months before coronavirus took hold, Sydney was in a recovery phase. Our boom that ran through most of the decade came to a halt in late 2017 / early 2018 and a period of consolidation followed. But in late 2019, it all started to gain pace once more. Listings were tightening and auctions began heading back towards exceptionally high clearance rates.

With fresh memories of the last hot run, and with a healthy dose of FOMO, some buyers were being caught up in the momentum. But of course, these conditions can encourage reckless behaviour. The idea of getting in quickly to avoid missing out can result in bad asset choices and dubious financial decisions. 

Buying substandard property at above fair market value is a recipe for eventual disaster.

Coronavirus upshot

So how can the changed market conditions bring any benefit? Here’s how:

1. Firstly, the Coronavirus has put a stop to underinformed, speculative property investment by buyers who were beginning to ignore quality in their property selections. For example, near-city detached houses are holding their values while oversupplied investor-style units are seeing price drops. While I’m all for a healthy property market, the advent of the pandemic has made us all stop, focus and reassess our property decisions – and that will be a good thing in the long run.

The virus has taught us that good quality blue chip stock is key when purchasing because it is more likely to be price resilient. Anyone who had started to dabble back into secondary quality stock in 2019 – and there were plenty – has now been pulled into line by the pandemic fallout.

2. Another valuable virus lesson has been the importance of contingencies. This global event has resulted in large scale, unexpected job losses with tough decisions now needed regarding household finances. Those who operated within their means and had a buffer amount in their monthly cashflow are doing better than others. Those who didn’t are scrambling to find solutions.

The same could be said for borrowing decisions. If you factored in the chance of a few percentage-points in interest rate rises as part of servicing your loan, you’ve actually created some breathing room. But rather than interest rates rising, you might be dealing with a falling household income. As it turns out, that may keep you liquid if things drag on too long.

3. Finally – the crisis has taught us all that good advice is valuable when it comes to a significant purchase like real estate.

The virus has created an environment where things are moving fast. While property itself is an illiquid asset, reading and interpreting rapid shifts in the market’s direction can be difficult unless you’re constantly staying abreast of what’s happening in the sector.

Having a well-networked and experienced buyers’ agent is essential. Not only are we unearthing excellent opportunities, but we’re able to help our clients understand what’s going on in this quickly shifting situation.

Like everyone, I look forward to the end of this pandemic and a return to some semblance of normality. In the meantime, there’s an opportunity to pause and reassess your property needs to ensure you are ready for when the end finally arrives.

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