Slow and Steady Wins the Race

Don’t panic. Whatever you do, don’t panic and make a rash decision that you may later regret.

No matter whether you’re in to shares or property, virtually every expert on the planet would give the advice of staying calm and holding on for the long term. Yes, it maybe horrible to see your superannuation plummet if it’s invested in the share market, but if you exit at the bottom, it’s very hard to benefit from the bounce back that will inevitably happen at some point. If you exit, then you crystallise the loss and trying to time that bounce back will virtually be impossible.

I’ve already seen a lot of homeowners and investors make a knee jerk reaction which I think they will live to regret. Most people know that I am an unemotional accountant and that can be a huge advantage in times like this. Whilst there will be some properties and owners that will be significantly impacted, I think most will not be and here’s why:

1) No matter whether you are a homeowner or an investor, if you lose your job and run out of money you can put your property ‘on hold’ by taking advantage of the governments/banks 6 months holiday on mortgage repayments. Chances are you will be able to do the same on your utility bills and other expenses as well. You generally only make a loss on property if you are a forced seller. I think that if things get that bad, there will be an extension to that 6 months for those that continue to be impacted.

2) Mortgage rates have been dropping over the last 6 – 12 months and many banks do have some very low rates at the moment. The banks are still open for business and they do have departments that look after those in trouble. Contact your bank now and see if you can drop your rate, move to a fixed term or change from principal and interest repayments to interest only to reduce what comes out of your pocket each month

3) Even if tenants can’t be evicted for 6 months, they still have a legal liability to pay their rent. You should still hold a 4 weeks bond for any arrears, and you should have a landlord’s insurance policy in force.

4) We’re yet to find out the full rent package for landlords and tenants. Some has just been released including discounts and payments extensions on land tax and I think further announcements will be made over coming months.

5) This is the time that I hope you have invested in a professional property manager to look after your property. Whilst many owner managers will drop the rent at the tenants first request, most professionals will take them through a process to ensure it is a genuine and warranted request. Most will prefer to accept a reduced payment in the short term and the arrears caught up later, than giving them a reduction that never has to be caught up on.

6) It takes time and money to sell property and that will slow the ability of people to make a knee jerk reaction. Those that need to sell still can, through private appointment, open homes and virtual auctions. That should ensure they are making more reasoned decisions when it comes time to accept an offer.

 

Many people will be seeing this as a negative time, but some will be able to see through the haze and see it as an opportunity.

1) We’ve heard many clients complain that they kept missing out at auction in the latter part of 2019 since the election and at the start of 2020. There were many buyers in the market and not many decent properties for sale. Housing unaffordability was becoming a topic of conversation and many buyers thought they would never be able to get in.

2) Some speculators have been waiting for years for this exact scenario. They missed the ‘bottom’ in 2019 when Labour didn’t get in as expected and negative gearing didn’t disappear. This is their second bite of the cherry.

3) If the market does continue to drop further in 2020, then that could be the perfect time for an upsizer. Sure, you may drop 10% on your $500k or $1m home, but if you’re upgrading to a $1m to $2m home, you could make double the difference or even more.

4) Long term investors always have an outlook that goes from decade to decade. They try and dollar cost average, just like the long-term investors in the share market. This means they continue to buy no matter what the circumstance and end up with an ‘average’ price over time. They may overpay a few percent one year, and then underpay a few percent in the next. However, it means that they’re always in the market and they are better than typically property is always more expensive in the future than it is now.

 

No matter whether you are a buyer or a seller, are frightened or excited by this current environment, please do not panic into a decision, make sure you get some truly independent advice from suitably qualified professionals and try and take a long-term outlook.

It’s the more expensive properties and those in areas of high supply that are more likely to be affected and so if you’re in a median priced property or cheaper, you will be less likely to be affected.

A few weeks ago, Australians were looking at a terrible pandemic and long-term isolation, a few weeks later our horizon is looking a lot brighter already.

If you would like to speak with us about your portfolio, get in touch and we’ll talk through your options.