At the start of the financial year, experts were forecasting strong economic growth and job creation, which would lead to an increased demand for housing. This was a popular prediction but with a few bumps in the road, the outlook began to change.
Financial Year 2019-2020 was impacted by 3 major events: bushfires, floods and a pandemic. This was something experts could have never forecasted. Were now into the new financial year and we are still trying to battle the wounds inflicted.
In this article, we are going to take a trip down memory lane and look at the impacts to the Australian property market last financial year.
On January 1st, 2020 the Australian Government introduced the First Home Loan Deposit Scheme to support eligible first home buyers to purchase their first home sooner. This allowed first-time home buyers to enter the property market a lot sooner than they would otherwise be able to. Previous to this scehme, First home buyers would have to either save up a deposit of at least 20% of their property’s value, or take out Lender’s Mortgage Insurance.
Whilst Australia was going through a tough economic period, first home buyers were encouraged to buy with experts stating ‘there are advantages in this market with less competition and some vendors feeling a sense of urgency,”.
With COVID19 wreaking havoc on job security and income, the Australian Government introduced a Residential tenancy moratorium on evictions. This meant that landlords had to negotiate rent reduction with impacted tenants before seeking to terminate a tenancy. Furthermore, the Government extended the notice period to 90 days. This allowed the tenants to find a new place without rush of no income. While this was an emergency measure and wasn’t designed to outlast the pandemic, it will be interesting to see whether this influences any rental restructuring going forward.
Foreign direct investment
Foreign Direct investment helps power some of Australia’s leading industries, creating more opportunities and jobs. ‘It supports local businesses, develops infrastructure and builds regional economies, and drives greater competitiveness, innovation and productivity through new technologies.’
This year Australia’s Chinese investment fell by almost 60% as Beijing shifted their focus towards developing nations. Experts estimate that Chinese investment in Australia will remain quiet in the coming year. Saying “The impact of Covid-19 will no doubt have an ongoing influence as governments move to protect critical infrastructure and tech, and try to prevent opportunistic acquisitions of companies at undervalued prices,”
Without this investment, our economy’s growth and the creation of local jobs will be stunted. As approximately 1 in 10 Australian jobs are supported by foreign direct investment equating to approximately 1.2 million people. However, it has been suggested that due to the travel restrictions being in place, it has reduced the amount of deals being made.
Bushfires and floods
In September, 11 million hectares were destroyed from raging bushfires. This included over 3,000 homes lost across NSW, VIC, QLD, SA and ACT. Due to this devastating event the property listings dramatically decreased, particularly in the regional areas, creating less property transactions Experts believe that the following 12 months, regional areas will see much lower property prices.
Following the bushfires, came floods. This was just another disaster that made buyers less confident to purchase and caused property transactions to halt.
With the outbreak of COVID19, the industry has had to fast-track it’s transition into the digital age. Lawyers have had to incorporate technology and new processes into their firms overnight, that would have otherwise taken months or years.
It is no surprise that the property market was impacted by the outbreak. With introduced social distancing rules, the norms like physical house inspections and public auctions were banned. This made buyers less confident with purchasing their dream home and property transactions were more than halved nationally.
The Australian property market, particularly the Queensland market has always been popular for overseas and interstate travellers. With the travel ban in place many listings have stayed up for purchase from to the lack of interest from Queenslanders. The affordability of the housing market in Queensland has drawn a lot of interstate migration, mostly from New South Wales.
In March this year, The Reserve Bank cut the cash rate to a record low 0.50 per cent. This has forced people to look at non-cash investments to maintain the same return. These non-cash investments include the share market, and the housing market.
This interest rate cut will cause prices to rise, leading to an even more difficult situation for first-time buyers. Whereas for homeowners, this has allowed them to pay less each month in mortgage repayments.
This has impacted not only first home buyers but retirees aswell. As with the interest rates dropping, the amount of interest earnt from savings has declined.
No expert could have forecasted that these events were going to take place in FY 2020. There were unforeseeable and each event created a chain reaction. We can only hope that FY21 will bring better luck and a more confident future.