The coronavirus is shaking things up with the true impact yet to be seen. The stock market is more volatile than ever, and as people attempt business as usual, it’s anything but. We talk to Coast experts to get their take on whether investing in property is a viable option in uncertain times, and if the current economic climate is similar to the 2008 Global Financial Crisis (GFC) and if so, what we can learn from it.
Grey Young, of Young Property Group and Australian President for the International Real Estate Federation, says going by past experiences of similar declines in stock markets, this often leads to a spike in real estate interest.
“The reasons for the drop in today’s stock market may be different to the GFC, however the result is the same. A loss of confidence in the stock market results in money flowing out of it looking for an alternative safe haven. Investors are always looking for a safe haven for their money and one that will give them a good return. The real estate market provides this,” Mr Young says.
“Interest rates are so low that nobody wants to keep their money in the banking sector. Real estate offers a stable investment with good returns.
“We will see more homes being listed and sold. Currently the market is very strong with a lack of listings and a lot of buyers competing for those listings. I would expect this to increase, which will lead to higher prices. We will then find that
sellers will be tempted to list their properties to capitalise on the high prices so more properties will enter the market,” Mr Young says.
Jack Childs, of Think Investment Realty, shares this view and says: “History shows that after every major shakeup in the share market, the property market surged strongly – in some cases almost doubled over the next year or two.”
So, what should you consider if opting to invest in real estate instead of shares? Mr Young says he prefers real estate as the market is more stable than shares and in the long term, the capital growth is excellent. “Because housing is one of the fundamental needs of our society, people will always be looking to either buy or rent. Currently on the Sunshine Coast the rental market is very strong as more and more people move to the area.
“With real estate, you can get a good return on your investment with assured capital growth over the medium and long term. The other benefit is asset improvement. Unlike shares, a property owner can improve the property by way of renovation so as to increase the property value. One downside of real estate is liquidity – with the share market one can sell one day and buy in the next. With real estate, it is more of a medium to long term investment, which should be recognised,” Mr Young adds.
Richard Scrivener of Next Property Group says despite it being too early to predict what the market will do, he believes good property holds its value, as it did during the GFC, and offers a strong return on investment thanks to the rental market.
“If you look at most areas on the Sunshine Coast and even Australia-wide, properties tend to double in value every 10 years, and like all good blue chip investments, it is always about the long term gain rather than the short term pick up,” he shares.
Head of research at CoreLogic Asia Pacific, Tim Lawless, highlights recent data and states that the past five years has seen Sunshine Coast housing values rising at the average annual rate of 3.6 per cent, with the past 12 months slightly higher at 3.9 per cent.
“Additionally, the gross rental yield is tracking at 4.6 per cent per annum, providing a total annual gross return of around 8.5 per cent. Over the same period, the ASX200 showed an average annual growth rate of 1.7 per cent as well as significantly more volatility. Of course, housing investments tend to have larger capital outlays on the purchase, as well as maintenance costs and some periods of vacancy,” Mr Lawless explains.
Mr Young says that overall, the enquiry levels are solid.
“Stock markets are typically much more reactive to shocks, which can at least partially be explained by the liquidity of the asset class; transactional costs are very low, the market value of shares are highly transparent and the trading platform facilitates a rapid transactional rate,” Mr Lawless says.
“There are some similarities with the GFC in that this is a global event that was unexpected that will involve a global stimulus response in an effort to keep economies buoyant and stave off recession.”