Market update – Property, economic and policy implications and ideas, & why now is the best time in history to refinance! (Ep.41)

We recorded the second Podcast in the space of five days of our Covid-19 specials on Monday to keep you updated with some of the latest news, as we assist you to navigate the rapidly changing property, financial and economic landscape. On this day, the share market had its biggest jump in 40 years with the expectation of the $130b government package which was announced that night. Victorian Premier Daniel Andrews also took his state into Stage 3 lockdown.   

In this episode David Johnston, Cate Bakos and Peter Koulizos take you through: 

  1. The unaddressed impact to landlords – as the Government announces no evictions for tenants who can’t pay rent but is yet to decide on how to support landlords beyond the bank’s assistance. 
  2. We suggest ideas for how to assist self-funded retirees relying on rental income – whose income level have dropped below the standard pension.    
  3. Why now is the best time in history to refinance to proactively manage risk and cash flow. Risk management has always been one of our five mortgage strategies, well prior to the Covid-19 contagion. The strategies have always been counter intuitive because they include a larger loan limit, lower minimum repayment and using offset accounts for surplus funds. Each strategy amounts to a bigger buffer when supported by an effective money management system. This all leads to flexibility for emergencies, such as right now for many. 
  4. The implications of the pending government stimulus package for businesses and those who have lost their jobs and how business owners can approach the situation of declining revenue. 
  5. Why you should spend (appropriately) if you have a safe job and a large buffer to keep the economy moving and Australian’s in jobs. Every dollar spent helps pay a wage somewhere.  
  6. The problem v the solution – The big philosophical question that has no perfect answer, but everyone has an opinion on. At what point does the economic shutdown leave a longer lasting negative impact from a health and financial perspective than the effects of the virus? 
  7. Flattening the curve – how the daily percentage rate of infections has reduced and what we can do to continue this trajectory. 
  8. Lockdown, what does Stage 3 and Stage 4 actually mean? 
  9. Property market update – how the market is expected to stay relatively consistent for sought after property, as seen at the coal face with a slump in sellers and buyers. But there are sprinklings of opportunities to purchase at a discount as some people are forced to sell.  
  10. And of course, our ‘gold nuggets’ to get you through this period. 

We wish you and your families the best of health and say a big thank you to all our health workers during this time. 

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Show notes

  • The government has announced many incentives and measures to keep the economy going and Australian’s safe – however there are many implications yet to be addressed.  
  • Landlords suffering from loss of income – no evictions for tenants who can’t pay rent. In the UK, Boris Johnson announced that they will be paying 80% of wage entitlements to assist tenants to keep paying rent. The Government could look at something similar here or provide rent assistance for tenants that would greatly help. The normal waiting periods for people to obtain assistance should be waived to give people immediate assistance when they need it.  
  • Investors relief – the banks are offering repayment holidays to investors who have lost income as a result of Covid-19 – but what about investors who have paid off their mortgage and are using rental income to live as self-funded retirees? They are not on old age pension, so they won’t be given the assistance that other investors are because they don’t have mortgages.  
  • This is particularly detrimental because Australian’s who are 70 years or older and living off rent won’t have an opportunity to rebuild their wealth. What is the plan B? 
  • A potential solution would be for self-funded retirees to be given old-age pension (forgetting the asset test) if their income falls below the threshold for income. The older investors are particularly vulnerable, supermarkets are hiring and Centrelink is looking for 5,000 new employees – but people in their 70s and older are directed to stay at home because they are the most at risk to the virus.  
  • Assistance to SMEs – how do you pay staff if there is no revenue? At the time of recording, the incentives announced were a tax driven incentive, but if there is no revenue, this is a moot point. On March 30 Scott Morrison announced a $1,500 fortnightly subsidy for employers who have lost 30% or more of their revenue to pass on to employees, in a bid to keep Australian’s in jobs.  
  • Businesses are left with the tough question on how to manage declining revenue. Do you look at letting people go one by one? Or does everyone have take a reduction in income for a period of time? The key is transparency and talking to staff regularly as announcements unfold and how business starts to shift. Potentially there are staff who could take a reduction in hours, especially where there is a couple working from home also looking after children. Some staff will have more flexibility than others.  
  • Impacts on larger enterprises – with the travel ban in force, University enrolments will take a hit as foreign students are limited to the number of online classes they can attend. The retail sector and tourism has also felt the pain with Myer shutting their doors.  
  • What can you do? Spend money appropriately, but spend money on things that keep people in jobs.  
  • The problem v the solution – We can’t lock everything down for too long, because the outcomes at the end of shutting down the economy could be worse than the coronavirus itself. The solution cannot be more detrimental than the problem – a statement made by Donald Trump. It is certainly not this black and white and there are layers to think through. At what point in this tug of war do we shift back to normality? On the one side you have people, families and the healthcare system suffering from the effects of the pandemic. On the other side you have a rise in people losing jobs, domestic violence, mental health. The government is trying to navigate this extremely complex and unique situation, and lead and making calls on what we’re doing and when.  
  • Flattening the curve – the rate of infections have halved, which is great news. Australians are fortunate in that we don’t live in such high densities, most of us are in detached houses on reasonable size blocks of land, in contrast to China or other major metropolis around the world where close contact is unavoidable. Closing of boarders has helped – not allowing entrants from overseas or forced self-isolation. If we continue to have boarders closed and mandatory quarantine, if we can ensure that those people who are at most risk (70 and above) can stay home, that will help us greatly. 
  • Tests conducted – government data to date is that 180,000 tests have been performed. Our data does seem to be accurate, we are actually performing better than what we are dreading. We’ve also had the benefit of watching and learning from other countries.  
  • Lockdown – Victorian’s are at stage 3 lockdown, we have to work from home now, we are not segregating into ‘essential’ or ‘non-essential’, we are segregated into ‘can work’ or ‘cannot work’. Some jobs can continue working like tradespeople, real estate agents, banking, shops. Social distancing is now down to 2 people in public, weddings at 5 and funerals at 10.  
  • What is in store for stage 4? You cannot be one on one with anyone outside of our family and you’ll be able to go out individually and exercise.  
  • South Australia – penalising on the spot fines for groups more than 10, now that has come down to a limit of 2. SA has the highest number of elderly residents, the infection rate is lower than you would expect, probably because international people that come to holiday and live in Australia are visiting NSW and VIC, with Sydney being a big destination for cruise ships.  
  • From the coal face – property purchases are still going ahead, but certainly slowing down, with some restrictions on how sales are to be made via online auctions and expressions of interest. When the vendor gives the agents opportunity to market and sell the property, they’re generally finding that they are getting competitive activity. Vendors results have taken a dive where they are panic selling, with inadequate marketing. There are some sharp deals available if you are interested in purchasing. Anecdotally we have heard that real estate agents are requiring purchasers to have a valid pre-approval in place before they will show a property to a prospective buyer and some advising vendors to hold off.  
  • Unemployment may reach 10%, but for that 90% still employed, interest rates are the lowest they’ve ever been, while you are still employed and haven’t had a reduction in income, refinancing is something you should be looking at. This may give you access to extra equity as a risk management strategy, to give you a buffer through to the other side and lower your monthly repayments. The added benefit is that it keeps people in jobs as well, the people who are working in these sectors.  

Cate Bakos- The Property Buyer’s Golden nugget:  The ability to socially connect, continue recording the podcast and lots of business activity which was traditionally person to person, has been able to be continued by technological ability. It has allowed us to stay close to our loved ones, so continue to embrace technology. 

Peter Koulizos– The Property Professor’s Golden nugget: In these tough times, stay as positive as possible, see not just what you can do for yourselves, but what we can do for each other.

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