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Property and Real Estate Context - Question 1
The coronavirus pandemic is having a breathtaking impact on the physical and economic health of people and nations.
What do you expect to be the impact of the coronavirus pandemic on the property stakeholders in your country in the next six months? Explain.
Explain by populating this table:
|
Stakeholder |
Impact |
|
|
1 |
Current Residential property investors earning rental income |
The residential property investors are the most affected stakeholders of the corona virus pandemic. These types of various investors are dependent on rental earnings for their livelihood. The tenants are becoming incompetent to pay the rental charges as the days of lock down are passing without any source of earnings. On the other hand, the landlords have to bear various expenses related to owning a residential property including land tax, maintenance, mortgage instalments, etc. However the federal government abandoned the issue and transferred the responsibility upon state governments. Although state governments provided various relieves like land tax waiver or rebate in tax liability. |
|
2 |
Current Commercial property investors earning rental income |
The commercial property investors including office buildings and multifamily housing buildings, hotels and restaurants, malls and retail stores, medical centres and farm land, warehouses, and garages along are struggling with legal compliance, labour shortage and most importantly low market demand. The consumers are not visiting super markets and stores due to fear of infection. The ignorance from consumers is the triggering point that breaks the whole supply chain. |
|
3 |
Lending Institutions |
The business activities have shut down on global level, no demand, production and no capital spending. All this eventually leads to less demand for funds in the form of debt (or loan). Thus the business of lending institutes is also getting impacted. Apart from that, the prevailing borrowers have become incompetent to pay their outstanding debt obligations in the event of no earnings risk, thus levels of bad debts are increasing in the ledgers of the lending institutes. However, next to government, these lending institutes have a huge responsibility to ensure optimal liquidity in the market as soon as businesses start operating. |
|
4 |
Estate Agents |
The business of real estate agents is more field work rather than work from home on a computer system. They have to meet different people, largely of them are unknown and hence they become more vulnerable to the disease. Various countries have made estate agents under essential services, but overall, since the demand has affected to almost negligible for buying, selling or renting, the livelihood of individual estate agents has become questionable. |
|
5 |
Commercial tenants |
The commercial tenants that have rented some office space, or operating a hotels or restaurants, retail stores or medical centre a warehouse or a garage are struggling with the payments of their rental charges, because during the whole period of lockdown, they have were not able to generate earnings, rather the fixed charges exists as it is. There is zero demand and consumers are avoiding visiting any public place including super markets and stores (apart from essentials) due to fear of infection. |
|
6 |
State Government |
The State Government is the front line law making agency that is responsible for taking essential decisions for health- care, infrastructure, equipments, etc. They are required to: · identify, and lead the agencies for preparedness of pandemic and create a response team; · Make modifications in policies and legislation required to sustain and optimize pandemic preparedness, capacity development, and response efforts across all sectors; · Make additional resources available for pandemic response measures The state government has to make larger spending while lower sources of income. It has to provide tax waivers and announce relief packages, needs to feed the citizens and look after their health expenses. |
|
7 |
Residential tenants |
The residential tenants are generally belongs to lower income group, middle class people who migrates to developed cities to find work, earnings, livelihood and better status of living. With the arrival of corona pandemic, they become incompetent to pay their rental charges as most of them have lost their jobs or are not able to conduct their business or professional activities, which eventually end with vacating the rental property (the home). However, governments have asked landlords to provide relief and/ or moratorium in the payments of rents, but the issue is that livelihood of various landlords is dependent on rental earnings. |
Property and Real Estate Context - Question 2
What do you expect to be the impact of the coronavirus pandemic on the following property prices in your suburb/city in the next six months:
- residential property prices
The housing prices, considering the major cities of Australian residential property market including Melbourne and Sydney, have risen 12.5 per cent and 14.5 per cent respectively till the 3rd quarter of the financial year 2019-20. The housing prices were likely to make up all of their lost grounds and is was highly expected that new peak will be touched shortly.
But later the Corona virus Pandemic outbreak, which resulted in great havoc for the overall Australian economy, including the residential property prices which were holding up and rising till then, the pandemic resulted in halving the property transactions. Some of the main reasons that tank the residential property markets were:-
- Fall in the consumer’s confidence,
- Issues of rising unemployment,
- A pending recession,
- Restrictions on auctions and inspections
- More cautious practices by lending institutions
Moreover the devastating impact includes hundreds of millions of dollars of sales down, incompetency of tenants in paying their rental charges and handing back the keys, results in no home to hundreds of people. The sales values fell by 85% in Melbourne market in the past eight weeks post lockdown period, this is a loss of $ 584m as compared to the previous period of the previous financial year. Similarly, Sydney witnessed sales down by 79% and a loss of $ 454 m.
As per the Australian Bureau of Statistics, 538,000 people visited Australia to settle in the country and find a home during the previous financial year while 298,000 Australians left the country, a net increment of 240,000 people in the country. As a result of Covid-19 lockdown and closure of border will result in the huge fall in the number of immigrants, posing a clear danger to the residential property market and the overall economy.
The short-term effects of corona virus pandemic on Australia’s housing markets can be devastating but it should not be interpreted that residential property values are going to plummet. Taking the example of China, the transactions in residential property markets reach to approximately zero for a period of three weeks or more of movement restrictions and lockdown and since then (after relaxations in lockdown) the market recovered to 50 per cent of the 4 year average. A similar trend can be expected in the Australian property markets, that means the falling markets is not reflecting the intrinsic values of the residential properties but a mere reflection of economic lockdown.
- commercial property prices
The Australian economy was witnessing a slowdown prior corona pandemic that was preventing any growth in the prices of the commercial real estate markets of Australia. And a sudden outbreak of corona pandemic has drastically threatened the world economy as various countries have implemented lock-downs at national levels to contain the spread. In the event of these newly generated circumstances, even the minor possibilities of appreciation in the values of the commercial properties have been wiped off.
Moreover the devastating impact includes hundreds of millions of dollars of sales down, incompetency of tenants in paying their rental charges and handing back the keys, results in no further source of income to hundreds of people. The sales values fell by 85% in Melbourne market in the past eight weeks post lockdown period, this is a loss of $ 584m as compared to the previous period of the previous financial year. Similarly, Sydney witnessed sales down by 79% and a loss of $ 454.
The following graph depicts the Australian and world’s GDP growth forecasts:-
A better estimation of the commercial property market can be made by the estimations of the International Monetary Fund for the Australian economy which says that the Australian economic growth will decreased by 6.7 % in 2020 due to Covid-19 economic lockdown. However, the positive news is that IMF also expects that the economy is going to revive by a percentage of 6.1 during 2021, considering efforts for the contamination of virus remain successful.
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