Many around the country will be asking themselves what is the ‘worst-case’ scenario for the housing market?
No doubt, we can expect many a media / sensationalist headline proclaiming impending doom in the market, which will unnerve many. Whilst values may slip in the short term, it is important to remember that it is likely only those who have to sell that will sell.
There are few key factors which we believe will drive this:
- The cash rate is at historic lows. Today, you can secure a fixed rate home loan for investment product at 2.59% for 3 years with NAB, whilst rental yields for a lot of product is at 4%, if not 5%, 5.5% or even 6% in certain suburbs. Therefore, it is incredibly easy to hold onto property today – meaning sellers likely won’t be forced into selling.
- There will be some landlords who have tenants that may have reduced income for a number of months, but some banks are already looking at ways to combat this with a range of measures including the option to pause your home loan repayments for a number of months if you are experience hardship to help you get through this short window of an economy affected by Covid-19.
- Whilst many investors will look to offload shares in the volatile share market – many will be drawn towards residential real estate given its relative stability, and stronger returns compared to returns on cash in the bank.
- Residential property serves a very real purpose – it is a roof over our heads. For most Australians, their house would be the one asset they would fight to hold over any other. It is not only an investment; it is a home.
At this point in time the potential outcomes of this global event are largely unknown, however the cash rate is incredibly low making it relatively easy to hold onto residential property; rents are reflecting comparatively strong yields; supply across our major cities is low and expected to stay that way; and the Government is releasing unprecedented stimulus into the economy and employment market to keep the economy supported until such a time that Covid-19 has subsided and the economy can return to normal.
We encourage investors to remain committed to ‘long-term thinking’ with their residential property investments, and we will continue to provide regular updates on the Covid-19 impact on the Australian economy and housing market.
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