Sydney Property: COVID 19 vs The GFC
The economic effects of COVID-19 have already changed the property market in Sydney’s eastern suburbs.
Over the next few months, they have the potential to create further uncertainty still. But that doesn’t mean we’re seeing the same property market that we saw during the Global Financial Crisis.
We look at how the two economic slumps compare when it comes to Eastern Suburbs property.
1. This is a very different economic situation
First, let’s be clear, these are very different economic conditions to the GFC. That global recession was caused by flaws in parts of the global financial system. This one is part of a global health crisis and is caused by a virus that has shut down large swathes of the economy.
Australia managed to shelter itself from the worst effects of the GFC. This time, with our hospitality sector, retail sector and other services industries temporarily not functioning, we haven’t been so lucky – even if healthwise we’re currently doing our best.
The fundamentals of our economy were strong going into the lockdown and our hope is that they’ll stay strong once we return to some level of normalcy.
We believe this is also driving some different behaviours from buyers and sellers this time around, compared to the GFC.
2. Some parts of the market remain strong
There is still some genuine interest in some properties, especially at the lower end of the Eastern Suburbs real estate market right now.
Here, first home buyers are a force, taking advantage of record-low interest rates, generous government subsidies and changed market conditions. They’re often competing with investors looking for a good deal. At the same time, there’s also low supply, which means that we’re seeing genuine competition on some properties.
3. We’re not yet seeing many distressed sales
One feature of the GFC was that we started to see distressed sales, as buyers needed to offload their properties and were prepared to take whatever they were offered. We’re hoping that won’t be the case this time around.
We say this for two reasons. First, we’re seeing unprecedented government support in the form of the JobKeeper allowance and other stimulus payments. Second, we hope the economy will bounce back – at least to some extent – when we get past the worst of the virus.
This is creating a different dynamic in the market altogether, with sellers waiting rather than offloading their properties.
4. Activity is down
In line with this, when people are faced with economic uncertainty they tend to be conservative. Given that we’re not seeing distressed sales, many people who had planned to sell are holding off to see what will happen. This means there’s a lot less stock on the market than there was in the GFC, which is helping cushion prices.
Also, sellers are still inclined to hold out for a decent offer rather than be low-balled, which is what some buyers are already trying to do.
5. There are some solid buyers in the market
At the same time, there are some very solid cash buyers in the market – something that was in short supply last time around. These cash buyers are often downsizers who’ve already sold their property or others whose employment and finances have been unaffected by COVID-19. Again, given the uncertainty, these buyers are often taking their time and waiting for the right property to come up.
6. We expect investors to start entering in force
During the GFC, a lot of investors did well by buying quality properties at reduced prices. Many have seen the value of their investments double or even treble in recent years.
Eastern Suburbs property will always be in demand. So buying when the market is low and waiting for the economy to gather speed is a good tactic. We expect to see a lot of investors begin to take advantage of the current conditions – at least in the next few months.
7. We’re still waiting for real data
One thing I’ve learned going through more than 25 years of selling property and multiple market slumps is that one sale does not make a market. Generally, I think you need between about 100 and 150 sales in an area before you can definitely say where the market is at. We’re a long way from that right now.
Instead, we’re really in the eye of a storm waiting to see what happens and when it will end.
If the return to normality is only a couple of months away, there’s a good chance the market will return to where it was reasonably quickly. However, if it’s six months or more away, it will be much harder for the property market to recover.
Contact my team today if you’d like any advice on buying or selling property in Sydney’s east during COVID-19.