Level 2 Lockdown - What could the new normal look like?
COVID 19—Finding a New Normal
COVID-19 impact on the Otago Property Market
Written by Kelvin Collins with 25 years of real estate experience in the Otago region.
Current Situation
The country is in a stronger financial position than it was in 2007 with low debt and also a good trading surplus up to now. The Banking industry has been lending responsibly and maintained good reserves plus the Farming and Horticulture sector are still performing well with China back buying our exports.
The government’s fiscal response has been fast with five times more funds already handed out than during the GFC and I believe there will be more financial relief to come.
Unlike 2007/10 all markets currently had a shortage of property for sale. Sales volumes had not reached unrealistic levels with less speculative building.
Most property owners have at least 25% equity in their property and the mortgage relieve will help those with short term cash flow problems.
What we don’t know
What is unknown is how a global lockdown down will affect global financial stability, especially in Europe and what the repercussions will be.
Will there be a domestic winter ski season for Otago? How long will this lock-down be in place for?
What might happen (based on a 4-6 week lockdown)
During periods of uncertainty, the fallback position for most is to do nothing which creates an opportunity for the brave.
Some newly established businesses or businesses previously trading under financial pressure, unfortunately, will fold, especially in the hospitality industry. This will lift unemployment or may result in selling property to support the business venture.
The second home market will be weaker until the countries economy recovers.
Managed Apartment demand will be weaker until occupancy recovers. There is volatility with operators in this sector, especially those that provided a guaranteed return.
Prices for family homes in new subdivisions will reflect closer to replacement costs.
The majority of owner-occupiers have at least 25% equity in their property and will be in a position to ride out any downturn.
After the lock-down comes to an end people may decide their current house is no longer suitable after being confined in it for a long period of time, or decide they can no longer live with those people they were isolated with.
Investors will look at property as a safe investment as it isn’t subject to the volatility of the share market. A reduction in rents will be offset by the benefit of lower interest rates for a longer period of time.
The impact will be quicker than the GFC with no fewer continued surprises. This is due to better regulations and disclosure around the financial industry and public companies. The proviso to this is that the World Bank helps some European countries obtain financial stability and that the virus is under control in most of our trading countries within six months.
