All roads lead to real estate

Why? Because everyone needs a roof over their head – be that as an owner-occupier or a tenant, a business owner or employee, an educator or student, a surgeon or a patient. Be that as a grower or manufacturer, wholesaler or retailer.

I see no indication that this crisis, this pandemic, will be any different. And look what the federal government has done in light of COVID-19? It has stepped in to look after the real estate market as an asset class. I haven’t seen any similar level of intervention in other asset classes, including the sharemarket.

For some perspective, the coronavirus pandemic was confirmed to have reached Australia on 25 January 2020. The first death in this country was recorded on 1 March.

On 24 March, realestate.com.au reported that “every day is changing in the wake of [the] coronavirus and it is becoming clear that the property market will not be immune”. On 12 April, it reported: “The coronavirus pandemic is having a catastrophic effect on Australia’s economy. While it’s still too soon to tell what damage has extended to the property market, it will unlikely come out unscathed.”

Stage 1 – Outbreak. Taking away of freedom

Our federal and state governments introduce necessary rules and guidelines to restrict the spread of COVID-19.

Stage 2 – Acceptance

We are adapting to the new way of doing things. Businesses are adapting and pivoting, but initial acceptance turns to “get me out of here” as the novelty wears off. (Staff gravitate back to the office environment, for example.) Real estate transactions still occur as people still want and need to buy, sell and rent. Rules around inspections change. Auctions go virtual. The real estate industry responds and the better the leadership, the more continuity is ensured and the more fluidly this carries us through the peak crisis period. We are now starting to see a light at the end of the tunnel.

Stage 3 – Return to ‘normal’. Almost there

This is ahead of us. It is a re-entry into life as we knew it. It will be complex to navigate, and business leaders and employees alike have critical roles to play in restructuring and moving forward. Courage, confidence, compassion and, above all, great leadership are required.

Stage 4 – The ‘new’ normal

There is a need to re-imagine the old, to bed down new or adapted strategies, and thrive. Businesses won’t go back to what they knew before the pandemic. They will reinvent themselves to be more resilient.

The real estate industry has got this.

We are at the cusp of the positive phase, but stage 3 will not be a “bang, bang, bang” like stage 1. This will be more gradual – over three to six months rather than a matter of weeks.

In the medical landscape, the focus is on the flattening of the curve. In the real estate landscape, we look to the upward curve of positive indicators.

This COVID-19 pandemic is going to give us a “new normal”, but those trends will shape the way we live and work.

Nothing will change the need for a roof over our heads.

Sharemarket losses and recessions are not necessarily predictors of property declines. Confidence will drive economic recovery, and real estate activity will be significant as “flight to safety” sees property offering better options in comparison to other asset classes given the low interest rate environment and the fiscal policies put in place by governments in response to COVID-19 (relief packages, stimulation packages, funding and support).

One of the most Googled questions right now is: How will the coronavirus affect house prices?

Some markets may experience this more than others, with a decrease in values – but not at alarmist levels. I do not believe we’ll see significant drops or forced sales across the board.

Right now, around one-third of the world’s population is living under some sort of lockdown. Only public health indicators will bring an “end” to the pandemic.

Three factors determine the severity of economic downturn: the degree of isolation and social distancing expected; how long these things go on for; and monetary and fiscal policies.

Australia is in a good space. As is New Zealand.

While no sector of the economy is being spared from COVID-19 impact, real estate is Australia’s biggest industry and its greatest contributor to employment. It represents more than 13 per cent of GDP, which is why those leaders who must manage and plan the economic and policy response to this pandemic will keep their focus firmly on real estate.

Housing is Australia’s single largest asset class. Residential property outperformed all other investment types, including shares, over the past 20 years.

Real estate makes the economy stable, has tangible value, provides jobs and is an income-generating asset. Real estate exists to provide shelter. Real estate will be a major pillar of recovery.

And when we come out the other end, our leaders – across government, real estate and other sectors – will be even better prepared for any crisis of the future.

By Michael Davoren, managing director, RE/MAX Australia

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