Will Property Really Plummet?

You are forgetting a very important factor, fear, market sentiment

people today are worried about their jobs, not everyone holds a secure government job

many may be limited to reduced hours effecting borrowing capacity

I hope I am wrong

 

Sorry, I didn't clarify. I was commenting from the perspective of individual investors with one or a few "High Street" strip shops with B minus and C and D grade tenants. LVR covenants will be impacted IMO as rents fall away. Even if their tenants recover somewhat, rents may stay subdued for a while and well off pre-Covid levels for a couple of years. Affects vals and possibly re-financing options or asking for cash injections which reminds me of early 90's when banks were avoiding commercial property like the plague. I was refinancing a retail property at the time and wanted a resi title back as the lender had too much equity. Nope! Take your commercial title free and clear and leave the house with us as security. If the small scale comm investors have also had their own personal cashflow impacted from job losses, there may be some forced sales.

Cannot argue with your REIT and insto investor scenarios. If lock downs are protracted, there will be some interesting listed opportunities. Understanding they will also probably take a rental (and subsequent distribution) hit, however if they are trading at 30-40 plus % of pre-Covid NTA, there is enough buffer there to still end up with juicy yields as the share price growth returns in time.

 

What would happen if valuations drop and the 60% cap. is exceeded?

Capital raising, sale of assets?

 

Spot On.
Even the businesses that aren’t effected will probably use it to remove dead weight.

I also think if we thought wage growth was bad now. It’s going to be non existent for years to come. The new norm will be “Im just happy to have a job”. Don’t think anyone That isn’t an essential service will be complaining If they don’t get any kind of rise the next couple of years.

 

Most people who are not fearful don’t understand the extent of the position we are in. All our “growth” has been fuelled by cheap debt - money borrowed - largely artificial without substantial real increases in real productivity or growth. This was all before the virus struck, the unwind of this debt bubble is just going to happen a lot sooner than if we had just kept floating along.
Even if we were the open back up in a month - things are not going back to “normal” for a very long time, the cheap debt still exists due to the temp government measures / and the RBA stepping in with their term funding program but without more government intervention with is effectively removing market forces /appropriately pricing in credit risk this is going to continue to slowly unwind. What China does and its position will have a much greater impact on us than anything we do locally. The broader global economy largely driven by the US too. The only real growth we had was population growth so suspect government will have a good hard look at opening this up....interesting times ahead. No need for panic and can still remain optimistic as Australia is an amazing place to live and we have done a fantastic job controlling this virus outbreak but being fearful of what lies ahead is only natural if you realise how much of our economic future is out of our control as a country.

 

Population growth is going to be tricky when borders are shut. Even in 6 - 12 months time if we have managed to mostly contain the virus within Australia, we won't be risking flare ups by opening up our borders to anyone. I imagine if and when they do open there are going to be some pretty rigorous policy in place for who enters and how long they are quarantined for.

For Aussie travellers flying to Bali for a holiday as an example, would you fly there for a week knowing you'll be quarantined in a hotel for a fortnight once you arrive home? I would also expect that it will soon be the travellers responsibility to be footing that quarantine bill too.

I don't know enough about how much we as a nation rely on tourism and immigration but I'm guessing we're all about to find out what repercussions there are when these are effectively shut down.

 

Datto--According to the media experts places like the ones you invest in are going to do well,while others who invest outside property may not do so well..

 

Its pretty easy to predict. China just had its first ever NEGATIVE quarter in decades. The same decades that we have not had a recession.

China GDP: Q1 Data shows first economic contraction in more than four decades - CNN

Now lets see USA with a population of ~330m is still seeing ongoing virus spread. Virus has peaked in NYC probably but due to them catching it late, there has been massive loss of life and population growth. Europe is already a basketcase both virus wise and economy wise.

Then we have to factor in the the virus spreading in other major population and economic centers like south america / india. / etc

These all point to at least another quarter of massively negative growth. And there we have it two quarters of assured negative growth despite all the stimulus measures here.

Oil is already reaching $15. Soon the deleveraging in that sector will happen as all the debt in the shale sector implodes. Then flow on to other commodities and sectors.

In order to flatten the curve most economies will have to run at subpar levels for quite a while. This will cause a credit crisis at some stage. If not then so much money will be printed the only thing worth anything will be GOLD.

By the way, the way other countries are continuing to do badly at social distancing and testing, most of the world will eventually get this virus. This will continue to hammer goods/commodity demand and hence chinese economy which will trickle down to ours.

Property might not plummet per se but currencies could be devalued really badly.

 

Any good news

 

I actually believe property is going to go alright over the next 10 years. It might take a 10% to 20% hit over the next year or 2 but all these trillions of dollars that are getting pumped into the world's economies has to find a home somewhere eventually.

 

Companies that shed staff may realise that they are more productive without those staff.

Companies that are heavy on nepotism will be caught out imo with the wrong people being kept and real talent lost. Good news is they will have to re-hire back to same or higher staffing numbers than pre COVID

 

Some morbid good news maybe for countries heavily hit by the virus they will have lost many people that were a burden on the economy.

 

There's a lot owed so instead of generating business much of it could just go to repaying debt.

Who knows though?

 

Our economy and same as many others are highly coupled with globalisation. Services such as university, tourism, luxury retail and exports are all relying other regions.
China, our biggest export customer it all the above will not do well because of the situation in Europe and the US.

US will not be out of the woods anytime soon with so many infected and dying. It is the biggest worry of all regions. I think the worst has yet to come for the country as the spread of the disease combine with a real chance of political and civil unrest as the crisis drags on.

Europe fares better than the the US in terms of disease control but it has suffered already a huge blow.

The worst for the rest of the world has yet to come.
I think this will drag out at least 2-3 years before we are out of the the woods for the broader economy. Our property market will certainly be reflecting that.

 

The post-COVID-19 effects have still to be realised. If the pre-virus relations between USA and China was bad and a detriment to global growth, post-virus I expect that relationship will be toxic. I also expect the USA will move towards greater 'self-protectionism' as occurred during the GFC. Through all of this, Trump has been made to look slow and foolish and is not going to accept excuses for rejecting change.

Australia is also going to have to look towards more 'self-protection' and a better way of operating. China has shown itself to not be trusted and it can't be a return to pre-COVID-19 and 'business as usual'.

 

There are some vampires out there - those fangs like to bite down on the old and vulnerable.
Keep them alive as long as possible and milk the crap out of them.
Why invent a miracle cure for disease? Just keep pumping the old and sick with medication to keep those dollars coming in.
This is the real motives isn't it? Or I am just thinking all the bad thoughts?

 

Is this being reflected in the interest in your house/s for sale in Brisbane?

 

Certainly not plummetting. Just more uncertainty which is understandable. So best offers are harder to come by and need to compromise. That's totally fine with me too. I'd be doing exactly the same thing if I were them. So I can take it just as much as I dish it.

 

we are in the poo big time

We also have second highest personal debt in the world. In other words out of control living off equity and buying assets which are now falling

Australia's household debt is the second highest in the world — and it's changing how we live

It was only a few months ago we were discussing the loan changes from interest to interest and principal and its impact. Its laughable now when we consider the seriousness of what is happening today