Impact of Covid on the Property Market
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Articles by Matthew Gilligan
I have been surprised at the somewhat negative media commentary on property in the last 90 days, with prominence given to many of the usual doomsayer economists predicting a market meltdown. With predictions of 10–20% price drops (and a few keyboard warriors during lockdown saying the market could fall up to 50%), it seemed we were in for something between a right meltdown and total systemic failure in housing markets. For many of them, it’s all still just around the corner when the wage subsidies run out and mortgage holidays end.
In reply to this, I can’t see it happening (all things being equal). In fact, I think house prices are just as likely to go up this year, as down.
I do wonder at times if it would be better for economists to spend a bit of time with actual investors and homeowners, or maybe a mortgage broker and property adviser, rather than their statistics and academic colleagues. A bit of feedback from the street would be helpful - for example, insight into the stimulus that is caused by rapidly falling interest rates and resulting demand - which I think they underestimate.
While the doomsayers see falling prices, investors are actually thinking they would enjoy buying houses at a 10-50% discount, to then benefit from a recovery in prices. (Two sides of the same coin.) Especially with bank lending becoming so cheap, and thin pickings in alternative investments such as the ailing stock market or returns on bank interest.
I just don’t see the crash in housing values happening this year, and neither do my clients it seems. In a webinar poll I ran during lockdown, 94% of circa 1200 attendees said they intended to buy another rental investment in the short term. (Remember this was at the height of the angst.) Every real estate agent I speak to in New Zealand (apart from Queenstown agents) tells me there is a mini-boom on at time of writing, driven by the historic low in interest rates and resulting cashflow windfall to investors and homeowners, amongst other things. Pretty obvious to property investors, but not the economists and regular property haters, apparently.
As I see it, there has not been any significant residential housing market impact in Auckland from Covid-19 in July 2020, nor in most of the markets I deal in across NZ (as an investor). Queenstown might be the exception – I feel for investors down there suffering from soft rental demand and job losses, but Queenstown has always been a bit of a boom-bust town. I also note that the ski fields are flat out at time of writing – many Kiwis are holidaying locally it seems.
I will be monitoring developments with interest, particularly once the second bout of the wage subsidies expires, but my view is that when someone loses their job, they still need a place to live. The questions here are:
1) Do they need to move cities to get a job? (e.g. Queenstown to say Auckland – good for Auckland housing and bad for Queenstown. Which areas win and which lose out of this?)
2) Who pays for housing people once they lose their job? A cynic would say the government will rescue anyone with no shelter. NZ has a world-class “emergency housing” programme, and it appears the only decision regarding someone without a house is whether the government puts put them into a hotel first, or simply immediately rents them a house. I provide a lot of social housing, and I am often surprised to see the tenants roll up in late model cars.
Regardless, there are still the same number of people needing housing, so core demand is unchanged.
With interest rates in the “2s”, a liquid and supportive banking environment, a government active in helping those in need and providing social housing, lots of jobs (despite 9% unemployment, many employers are reporting they can’t get staff), and thousands of expats returning from overseas every day, I just can’t see distress in the residential property market (with the exception of Queenstown). Even if you are forced to sell, you are selling into a hot market so should get a good price. Alternatively, a distressed vendor can retain their home and rent to tenants, which would likely produce positive cashflow given the current low interest rates. So where is this impending meltdown? Show it to me – like others I would really like to buy some cheap houses and rent them out; the cashflow is fantastic at present. But get in line, it seems most of NZ is thinking the same.
If you’d like to know more about property investment strategies for the current market conditions, I invite you to watch our Property Investment & Education Seminar, which is available online (either on demand or via live Zoom webinar). www.gra.co.nz/events/property-investment-seminars
Matthew Gilligan
Director
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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Matthew was extremely well prepared and delivered his 4 hour presentation like a natural. It was very informative and I believe the value of the information well exceeded the investment in the event. (That doesn't mean putting the price up for the next one though! :) - Johnny
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