Analysts have mixed feelings about continued growth in the real estate sector
War in Ukraine is driving economic sentiments down across the world, and the outlook for the Australian real estate market is not too great for 2022, according to Shane Oliver, chief economist of AMP.
“The Ukraine war may take a bit off growth due to the negative impact on confidence,” says Oliver, who is projecting a slow down in real estate due to increasing inflationary pressures in 2022. AMP is predicting a price drop of 10 to 15 per cent.
According to analysts like Oliver, Australia’s three-decade-long real estate growth may get stalled as war, and the pandemic will further lead to rising inflationary pressures. Rising oil and energy prices and the prospect of higher interest rates will also slow down a surging property market.
According to them, any escalation in the conflict will also further cause panic in the market in the coming months. For instance, real estate in Sydney’s Harbour suburbs dropped around 35 per cent when submarines launched an attack in Sydney Harbour in 1942 at the height of World War II. Also, the constant talk of nuclear conflict and a possible escalation of the China-Taiwan conflict could worsen the property market
Although sentiments are overall bordering a negative outlook, some property investors are hopeful of sustained growth for Australian real estate in these times.
Brisbane-based property investor PK Gupta recently spoke about the impacts of the Ukraine War on the Australian residential property market in his YouTube show. Gupta’s reasoning is simple—war and calamities bring down the appetite among investors to move to “risky assets” like bitcoin and stocks as they are speculative in nature. Gupta felt interest rates would remain lower for longer, and investors would flock to safe havens like residential real estate and gold.
Gupta is confident that the residential market will continue its growth trajectory. However, Gupta has a word of caution for commercial real estate investors. Due to inflation and a low growth scenario, economies may move towards a state of stagflation. It will ease buying pressure on commercial real estate and therefore push prices down.
Other smaller investors are still confident that real estate is a safe bet.
Take Ron Paul Singh, who had an investment property in the Surf Coast shire in Victoria for over a decade. He sold his apartment in panic when the pandemic began in 2020. The bad news around the pandemic influenced his decision to sell and exit the market, which now he regrets.
Fear and negative sentiments in the market influenced Singh to sell his only investment property to keep cash reserves in the bank. “With two school-going children, my expenses were rising. I run a business, and I wasn’t sure if I could afford to manage an investment property if the market took a downturn. As a knee-jerk reaction, I sold off my property,” says Singh.
Singh adds, ” I didn’t expect the Australian government to handle the crisis so well. During the pandemic, the government’s stimulus payments were generous enough to keep my business afloat. I really regret selling my property. I could have easily handled an investment on the Coast. Now Singh is planning to go back into the property market as he feels the interest rates will remain low due to the war.”
Learning from the experiences of Singh and being a bit cautious at the same time is the need of the hour.
Following two years of stimulus packages offered by various central banks worldwide, inflation has reached over 7 per cent in America and 3.5 per cent in Australia. It is probably the first time America has seen such massive inflation since the 1970s.
Central Bank fuelled stimulus may have averted an economic catastrophe during a pandemic in the West. However, the new challenges arising from excess stimulus make things harder for governments to sustain growth and fight rising costs.
War in Ukraine is driving economic sentiments down across the world and the outlook for the Australian #realestate market is not too great for 2022 according to Shane Oliver, chief economist of AMP. #TheIndianSun #UkraineRussianWar https://t.co/H5MmJ41arP
— The Indian Sun (@The_Indian_Sun) March 4, 2022