My predictions for the economy from COVID-19

• Credit crunch
• Lower bank Val's and policies
• Equity release crunch. 80%= lol
• Income stability assessments will be hero or criminal
• IO will stop other than a remedial issue that later harms the borrower
• SMSF loans stopped except gold star dealsl
• Low doc of any form is stopped
• Debt assessment will kill deals. ATO etc
• Investors will be trashed by lenders
• Higher taxes for sure. GST and base tax.
• Some will need to offload IPs as rent could fall over 12-18 mth but those who can persevere won't lose
• Investors to be hit by real estate PM Defaults and trust account issues
• Some Landlords will drop their pants for short term rent and harm future rent
• Brokers will enhance some deals over the line but others will hit a wall
• Small Devs won't work and more supply will hit as first buyers back off
• Apartments. I dare not predict. OTP is dead and Val's will be a issue. Developers may dump holdings at lower prices to see market prices drop but stand alone and quality may sustain some areas
• Defaults etc see second tier lenders may face higher costs. After 6 mth
• Good brokers will persist and be value. Lower lending will see fee impacts pushed through as margin squeeze to hurt industry with major income loss.

Good news

• People and global economies will recover but it will take time
• People need homes and always will
• Good advice v poor reaction and timing will help. Now us the time your adviser pays

I hope I am wrong. But....

 

Good summary and I generally agree with your points, a couple of thoughts:

Assessment will be challenged but those in strong positions with "essential roles" will be desired customers, I would be surprised if <80% posed an issue in those cases, based on conservative valuations.

To a point but the big unknown is Goverment/RBA/APRA intervention. I predict they will all be pushing for very accommodating lending conditions to ramp up quick as we come out the other side of this.

Not until we are well out of the woods, they won't touch this until economy is humming along again, lest we head to another great depression.

Maybe in isolation, but if systemic I would expect to see RBA intervention here.

 

Some of these items already happened for example ....

oversupply of apartments

some investors already trying to offload

In many States small developments dont work or getting harder to work ; and

developers finding it near impossible to source funding for any developments over 4 units

i think we will see rents drop in all States?? Imho

Global economies will recover, but we just dont know how long it will take. If it goes on for years, I expect housing and share markets to continue a southward trend

AUD i think will continue southward trend back to 55??

The winners here will be those who have cash or LVR is low and can ride this out and patiently wait for opportunities

 

55c and beyond me thinks. Probably 50c when the **** really hits the fan in the US in a few weeks.

 

I think it hit 53-54 about 1 week ago, recovered slightly but I agree could hit 50???

 

I’d be betting on this.

Backpackers and short-term immigration will most probably take a short-term hit (they especially won’t be flocking over during the Aussie winter).

In Sydney I expect to see units offloaded around; Bondi, Coogee, Clovelly, Bronte, Randwick.

Suburbs like Waterloo, Alexandria and Zetland will be smashed too but that’s Apartment territory.

 

some will also sell IPs as they want to get into shares.

 

Interesting that people seem to be doing this Terry.

I haven’t run the figures yet but just thinking out loud:

Ave. 2 Bed, 1 Bath, 1 Car Space Unit in Sydney = $750k bought for $650,000 say 2 years ago

Let’s say 75% LVR? Mortgage= $563,000

Selling costs: $20,000

CGT based on $100,000 CG = $23,000

Net funds after sale = $147,000

Invest $147,000 into shares

Hold for 2 years? Double investment say? = $147,000 profit

Sell to invest back in property so CGT on $147,000 = $33,000 so residual let’s say $114,000 + initial investment of $147k = $261,000

Purchase of same property, market has moved by say 10%? Property is now worth $825,000.00

Get back to 75% LVR - deposit required is: $206,000

Stamp Duty and other costs = $35,000

So $206k + $35k = $241k to invest back into property.

Assuming the property investor appreciates the long-term benefits associated with holding property and assuming I’ve got my (albeit arbitrary) figures correct, is it worth the risk and effort?

 

I haven't seen anyone do it in response to this crisis, but have had clients that have sold up and invested in shares (not on my advice).

Keep in mind many have very low LVRs on property too.

 

I liked most of your points, but this is a head scratcher for me. You think this government will raise taxes?

 

I reckon they’ll introduce some form of budget repair levy again. Still a tax.

 

I recall after Sept 11 backpackers cars outside 'share houses' for months.
dumped furniture on the streets.
Sydney had had the post Olympic success Euphoria wrenched from our manicured nails...
Everything felt 'miserable'.
Property prices fell...
I lost my job shortly after.
And I am still disappointed that I didn't buy more property
Keep looking at the bigger picture
I hope this helps

 

So in summary, the bad news outweighs the good 10 to 1?

 

I'm concerned about negative gearing and 50% discount on CGT going.

Then, I reckon Medicare might get slapped around. What else? Centrelink benefits will become draconian when the virus is buried. Whoa....wages and work conditions.... I dare not think about.

 

If the bill for CV comes in at something like the quoted $1 trillion, that's about $100K ? per taxpayer (ignoring those who pay no tax or very little), say $10K a year for the next decade. Reforming NG is IMO a likely target: they can claim that they really didn't want to do it but extreme circumstances .... Labor can scarcely protest since it was their idea, and no one is going to switch their vote to Labor because of this. Whether this happens or not, in one way or other we'll be picking up the bill for a long long time.

 

I'm getting a baaad feeling about all this Tony.

But what if there's huge boom with China and our resources tax covers the tab?

 

Unless the Govt changes the rules, current 457 visa holders will have to return home shortly after being made unemployed. Therefore, I think it unlikely immigration will be able to recover for a considerable period and only then for very specific skills. Unemployment, if forecast to go to 15-20% will take considerable time to get back into mid single digits. Not all of the jobs being lost are baristas, shop workers or work in the tourist sector and this almighty shock to the economy will take a lengthy period to work through.

 

I like your thinking: when I had my winter break to Port Hedland last Sept there were massive new ore export installations in progress. Hopefully they'll soon be operational.

 

I actually think banks will lossen up on lending and valuations might not be as bad.

What the government is doing right now is to encourage banks to lend money by increasing their liquidity. And we all know that one way the save this country is to maintain the housing transactions, the most effective way is via easy credit, which we had that about 7 years ago.

What I predict will happen in the near future is that banks will actually further lower their floor rates to increase serviceability. And switching from P&i to IO might not be as difficult. The last thing banks want is repossess your property.

 

#realitycheck

My information from the banks' grapevines is that they will be more cautious and focus more on quality rather than quantity because of so many unknowns. They are now in a risk-averse self-preservation mode, and will be for some time.