How Is China's Coronavirus Affecting Luxury Property Market In Australia?

How Is China's Coronavirus Affecting Luxury Property Market In Australia? Melissa
Melissa
Thursday 27 Feb 2020

Coronavirus has been in the news ever since the whistleblowers alarmed the world about the lethal disease, which began from the seafood wholesale market in Wuhan, China. With the current death toll reaching 2,760 and number of infected cases rising to 81,000, the whole world is waiting with bated breath to curb the virus from becoming pandemic.

Several cases have been reported in neighbouring Asian countries as well as Australia, Europe and the US. With a lockdown in China and a ban imposed on travel, the Australian economy is estimated to experience a loss of billions of dollars as the business supply chain networks are getting disturbed.

Naturally, the impact has escalated to all industries, including luxury property for sale in Australia. While the early forecasts estimated a healthy growth for the prestige market in 2020 as the interest rate is low, the coronavirus outbreak has changed this scenario. Let us try to understand how it will affect the prime property segment in the country.

Lower Enquiries from Chinese Investors

Among the offshore investors, the Chinese people are the highest bidders of luxury real estate in Australia. The cashed-up buyers had found solace in the depreciating Australian dollar and the recent record-low interest rates to find stunning homes in Sydney, Brisbane, Melbourne and Sunshine Coast.

The lifestyle offered by these metropolitan cities along with the job opportunities and educational infrastructure have been attracting investors from the Mainland for a long time. However, the coronavirus crisis has put a stop on the enquiries coming from the potential offshore buyers.

Beginning from mid-January and now continuing through February, the alarming situation has kept the foreign capital away from the property markets. Additionally, the decision of the China Real Estate Association to close down its sales office temporarily to avoid the transmission of the deadly virus through human contact has made it impossible for buyers to invest overseas.

Lockdown in Several Chinese Cities   

Usually, the Chinese New Year was the time when the buyers would invest their money in high-end properties, but the pattern has changed this year. The sales have taken a hit as the Asian country is leaving no stone unturned to control the spread of the virus. In February, as many as 48 cities in China were locked down and quarantined, so there is no movement of people in these places. Businesses have been suspended and all precautions are being taken to avoid further proliferation of the disease. 

However, it has not led to any decline in the housing prices in Australia at present. The Chinese investment activity has reduced, but the prime residential market seems to have absorbed the shock as the interest rate remains low and political stability has been maintained in the country after the elections in 2019. Also, the housing market is on the rebound in Australia after a slump, and the prices have improved in the residential segment after the Reserve Bank of Australia announced the cuts.

Forecast For the Property Market                                           

The situation in the property market appears similar to what happened during 2003 when SARS broke out in China and engulfed the entire world in its alarming economic repercussions. However, the Chinese economy bounced back into action, and the investments increased after the scare of the virus was removed from all parts of the country.

It is still too soon to determine the impact of coronavirus on the luxury property market. The bottom line is that even if it does affect the sector, the segment is primed to gain once the Chinese investors get back into the game. The reason is that they will be looking for Australian homes as a safe haven away from their native place which may have to reel under the slowdown created by the shutting down of various cities for a long time.

Also, investment in property is considered a secure way of utilising funds as the prime property will always yield great returns. Moreover, it is being estimated that the Reserve Bank might further cut down the interest rates if the economy slows down due to the impact of coronavirus.

The Current Status

Cities like Sydney, Melbourne and Brisbane have always been the most sought-after destinations among luxury property buyers from across the world. In fact, Sydney has generated the highest premium for its waterfront homes in the past year. While the Chinese buyers are not able to view the properties currently due to the travel ban, there are other American and European buyers who are eyeing these vistas.

Ranked among the top global cities for prestige property, these cities will continue to be the hotspot for lavish homes that exude comfort and extravagance in abundance. Many luxury apartments are being enquired by the local population, which has a considerable percentage of high-net-worth individuals.

Also, there are no signs of a downturn as yet, which is good news for developers and people who intend to sell their opulent residences. If the RBA rate cut takes place in the latter part of the year, it will increase the demand and eventually, the prices will also go up which will help in boosting the confidence of the investors.

The Investor Psyche

As stated above, people prefer putting their money into tangible assets that will bring higher returns in the future, so prime property investment will be on top of the mind of most investors. With owners holding on to their properties while waiting for a further drop in the interest rates, the demand will continue to surge.

The economy will have to suffer due to the reduced activity in tourism and exports as well as the import of resources from China. Thus there is no chance that the interest rate will see an upswing in the coming months. The output of this situation depends entirely on how quickly this problem is brought under control and how soon things come back on track. Until then, the property owners can feel some respite from the fact that the growth predictions for 2020-21 show a positive trend.

Conclusion

While the economy is still dealing with the aftermath of the bushfires, the setback from the growing cases of coronavirus has made all the industries sceptical. Although the values of luxury properties for sale in Australia are tipped to grow, it is hard to predict the impact of this challenging problem so soon.