April Market Wrap Up
The Market Wrap this month is focussed on the impact of COVID-19 on the Australian economy and the property industry. While the full effects of the shutdown will not be known for many months, we have been encouraged by the unprecedented level of Government stimulus and the country’s response to flatten the curve.
Government Stimulus
This past month, the Federal Government has turned to support jobs, incomes and businesses at an extraordinary level, and Parliament has passed a record number of bills in response to COVID-19. The RBA has dropped interest rates to a record low and has also implemented quantitative easing in Australia for the first time.
By the end of March, the total Government support for the economy equates to a forward estimate of $320 billion and represents 16.4% of annual GDP. The Government’s economic response targets three areas: 1) ‘Supporting Individuals and Households’, 2) ‘Support for Business’ and 3) ‘Supporting the Flow of Credit’.
Read here for the more detailed summary that we have prepared.
Flattening of the Curve
The Government has also been proactive in fast lock down measures and it is working – the curve is flattening, and the virus may have reached its peak. Health officials are now expecting Australia to follow the trajectory of South Korea and Japan, not that of Europe and USA. While this is not a time to become complacent, it does remind us that there is light at the end of the tunnel.
Fiscal and Balance Sheet Support
Now let’s take a quick look at the macro economic factors.
Last week the Reserve Bank Board kept the cash rate on hold at 0.25% and have advised that it would remain the same until ‘progress was made towards full employments and that we were confident that inflation will be sustainably within the 2-3 per cent range.’ Governor Lowe indicated that this could remain at 0.25% for up to three years.
What is interesting during this crisis, unlike the GFC, is that the Government can’t slash interest rates to boost the economy. Consequently, we are seeing unconventional monetary policy. The RBA is printing money and going into the bond market and buying up government securities from the commercial banks.
While this sounds dull – it’s very important for all of us.
The Reserve Bank has already bought tens of billions of dollars’ worth of bonds in aim of specifically targeting a 0.25% yield on 3-year Australia Government Securities. This means that business and mortgage loans will be have lower funding costs and put downward pressure on borrowing costs across the entire economy.
Challenges
Now looking to the share market. And it’s moments like these, we’re glad we work in Real Estate!
We’ve seen a 21.3% decrease in the All Ordinaries Australian Stock Exchange, which is the second-worst month in over 137 years, with October 1987 being the worst. The ASX200 declined by 34.7% as well.
The AUD hit a 17-year low and decreased 12% in the March Quarter to 59 cents against the USD. This will hurt the retail sector even further, along with those buying goods from overseas.
Consumer confidence has also dropped 3.8% in March and is expected to continue to decline with the expansion of COVID-19 globally.
The Good News
We have seen huge market volatility as a result of COVID-19 but despite everything happening right now, it is also important remember that Brisbane’s fundamentals remain strong.
The Federal Government is forecasting expenditure of $320 billion to support businesses and incomes across the country.
Further to this, locally there is an incredible pipeline of infrastructure projects that are underway right now, which continue to support employment and property values. Our affordability remains incredibly attractive, particularly compared to our interstate counterparts – our median house price is 55% of Sydney, which will drive interstate and offshore demand in the future.
Brisbane still has strong rental yields, low vacancy rates and there is limited supply forecast for completion over the next few years. And historically, when the international stock markets fall and the dollar weakens, we see demand for property increases.
So, while the seas are rough right now, the storm will pass, and the sun will rise again.
Bluebird Property Partners is a specialist property development management and advisory company, based in Brisbane. We provide a dedicated and personalised service to developers and landowners who may not have the time, expertise or resources to oversee their projects.
We have extensive experience, networks and the resources to manage all or any part of the development process.
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