COVID-19 and the property industry

COVID-19 and the property industry

6 March 2020

The Reserve Bank’s decision to cut interest rates to a record low level of 0.5 per cent reflects the serious economic impacts of the coronavirus outbreak. 

Ken Morrison, chief executive, Property Council of Australia said “There’s no doubt coronavirus is causing a global economic shock, the full impact of which is still playing out here. And while this is a fast moving situation, as of yesterday Australia had experienced only 33 cases of COVID-19, of whom 21 people have recovered. Every member I have spoken to over the past fortnight is considering how this may play out and what may be the impacts for the property industry.”

Here are a couple of important points to make about the impact of coronavirus here in Australia. 

Firstly, our government is strongly focused on addressing the health challenges posed by the international outbreak. All the signs are that their early and focused action has so far been effective in containing the spread of the virus within Australia. Our healthcare system is also highly capable, well-resourced and prepared to respond to any further spread of the virus.

Secondly, while acknowledging the impact of the outbreak on the domestic and global economy, and the uncertainty about how long it will continue, the RBA also highlighted the potential for the Australian economy to return to an improving trend once the health emergency has passed.  

On the positive ledger, the RBA noted Australia’s low interest rates, high infrastructure spending, lower exchange rate, a positive outlook for resources and expected recoveries in residential construction and household consumption. The Federal Government has also foreshadowed a pre-budget stimulus package to help those sectors of the economy most affected by coronavirus (which will come on top of stepped-up spending for bushfire recovery). 

“This is certainly not a time for complacency,” notes Mr Morrison.

“The economic impacts are already significant and will certainly grow. The virus does present serious health risks for Australia. It is also important for all of us to maintain our perspective and focus on helping our staff and customers manage through this coronavirus challenge.”

McKinsey & Company recommend the following seven business responses to COVID-19.

1. Protect your employees. 

The COVID-19 crisis has been emotionally challenging for many people, changing day-to-day life in unprecedented ways. For companies, business as usual is not an option. They can start by drawing up and executing a plan to support employees that is consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some companies are actively benchmarking their efforts against others to determine the right policies and levels of support for their people. Leaders must communicate with employees with the right level of specificity and frequency.

2. Set up a cross-functional COVID-19 response team. 

Companies should nominate a direct report of the CEO to lead the effort and should appoint members from every function and discipline to assist. Further, in most cases, team members will need to step out of their day-to-day roles and dedicate most of their time to virus response.

3. Ensure that liquidity is sufficient to weather the storm. 

Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity.

4. Stabilise the supply chain. 

Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission. Most companies are primarily focused on immediate stabilisation, given that most Chinese plants are currently in restart mode.

5. Stay close to your customers. 

Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviours. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery.

6. Practice the plan. 

Many top teams do not invest time in understanding what it takes to plan for disruptions until they are in one. This is where roundtables or simulations are invaluable..

7. Demonstrate purpose. 

Businesses are only as strong as the communities of which they are a part. Companies need to figure out how to support response efforts—for example, by providing money, equipment, or expertise.