The worldwide covid-19 pandemic is exerting pressure on all areas of commerce, industry and daily life. With many Governments having ordered what is effectively a pause on normal daily activity – including the implementation of lockdown procedures in some cases – the effect on the overall economy is severe.
In Australia, the situation appears not to be as dire as in some other countries – notably large areas of Europe and the USA which have been badly affected – yet that does not mean the economic impact has been slight. Below we look at how the Covid-19 crisis has affected property investment in Melbourne and Australia, with a view to the eventual outcome.
Impact on Property Investment Companies
The simple fact is that current times are not, for want of a better word, ‘normal’. The world economy is taking a major hit, and businesses are on a – hopefully – temporary hiatus.
This includes the real estate market and therefore, property investment. Restrictions on travel and movement have a clear impact, but perhaps the biggest influence is the uncertainty as to how the future will develop.
In times of uncertainty, world and domestic markets become unstable, and investors become wary; this is also true of property investors, who will perhaps have put a hold on business for the short-term.
Much of the problem lies in that short-term factor: in simple terms, how short time are we looking at before things start to turn around? One influencing factor is that many people are currently unable to work.
This results in lower-income and any change in circumstances means tightening the reigns. The same is true of investors – and property investment companies – who will be waiting for some signs of improvement in the Covid-19 situation before they start to move on.
What of investment developments and construction sites that are underway? Are things still moving forward? Let’s have a closer look at the areas of property investment Melbourne investors see an impact on, and what the impact of Covid-19 will be overall.
What are the Likely Effects on Property Investors in Melbourne?
As with any city in any country in the world right now, many investors will be extra-cautious when it comes to current and future stock.
One of the key aspects of property investment that plays into the hands of those who already have property is that investors tend to hang on to their property as a longer-term investment.
This allows them to potentially shoulder any short-term shock to the economy and the market. Once again, the time factor is important, as in how long will the market be in a state of flux?
The major problems will start to manifest should the Covid-19 crisis persist for longer than expected (at the time of writing, the virus appears to be being brought under control in many countries, and some states in Australia are already loosening restrictions); should the pandemic continue to have an impact for several more months, it is possible that many investors will see the need to let go of property in their portfolio, as the ability to service debt becomes harder to achieve. The other option is for them to hold on to all property, and weather the storm.
There is no clear-cut outcome, but what is so is that – at the moment – people are not taking up new rentals, as they have few clues as to the path ahead.
The Impact on Developers
An immediate effect of the Covid-19 crisis was seen before the virus arrived in Australia: developers and constructors rely largely upon China as a source of affordable building materials. With this source effectively cut off – China being where the outbreak occurred in the first instance – thanks to Chinese industry being locked-down, construction projects were halted.
Self-isolation and the imposition of lockdown to prevent non-essential travel also resulted in a lack of labour, making construction on investment developments impossible during the pandemic.
The problems with this are many: machinery still has to be paid for even when work is not commencing and shutting down a construction project costs money as a result. Many constructors and property investment companies are looking at ‘force majeure’ as a result.
Force majeure occurs when a project or business is prevented from performing its purpose through no fault of its own – in this case, the Coronavirus pandemic. However, it is not a straightforward matter in Australian law and needs to be treated on an individual basis.
It may be that developers and investors can claw back some of their investment on stalled projects this way, but legal intervention will be necessary.
It is unavoidable that property investment in Melbourne will be affected by the Covid-19 crisis, as it will be across the world. It may be that transactions that were about to be completed – perhaps a new purchase, a new development and even the basic transactions of tenants moving into rental properties – will have been put on hold, which will naturally have an effect on the state of the property investment market.
Landlords with investments in Melbourne need to seek legal advice – and pay attention to Government updates – on whether they may be entitled to help in the event of business transactions being affected by the situation. This is one of those situations that is very hard to call as to how things will develop in the future, so all we can add is that seeking the right advice is the best course of action in the short-term.