Working Out Your Tax Claim, Now You’re Working From Home.
What’s the Outlook for the Residential Property Market for the Rest of the Year?
COMO on ClydesDale with Stamp Duty Rebates of up to $50,000
Stamp Duty Cut for Off-the-Plan Apartments in Bid to Boost WA's Ailing Property Market
Arranging SMSF Finance
NRAS Investment Opportunity
Perth Property: Most Affordable in More than Two Decades
Property predictions for 2021
QBE Housing Outlook of the Australian Property Market for 2018-2021
Investment Property Market Snapshot
Beat the interest rate hikes and switch to a low rate home loan
Economic lift for last-placed WA as indicators point to recovery
Boomtown’s bounce is back as economy out of the woods
National Housing Market Update | July 2018 source: CoreLogic
WA property market tipped to lead the way in growth after slump to worst performing
Perth Rental Landlord Stung With GST Twice By Real Estate Agents
West Mundijong to become new 'industrial hub'
Homebuyers warned of looming mortgage rate rise risk
WA landlords still facing huge damage bills from cannabis grow-houses
New TAX rules for property buyers
Margin Scheme Explained
Capital City Dwelling Values Record Their First Annual Decline Since November 2012 While Regional Dwelling Values Continue To Edge Higher
Perth remains the cheapest capital in Australia to rent a home despite first price rise for five years
Property Resales Continue To Show Profit Despite Slower Conditions
Does your Property Manager stack up?
Investor Lending … Finally Some Good News
Moroccan Chicken Tajine Recipe
Perth Property shows a modest and stable outlook in 2018
7 Tips to Help you Achieve your Financial Goals in 2018
My thoughts about Bitcoin and USI Tech.
December 2017 Housing Market Update - Positive News for Perth
Now’s the time to buy a house in WA: Billionaire Kerry Stokes stakes reputation on perfect property market conditions
Do You & Your Partner Have Life Insurance?
Interest Rate Game Changer
Be on high alert - Scammers target WA property industry
In need of financial solutions? Meet Nash Finance
Summer Nectarine Smoothie
Date and Tahini Fudge recipe
Implications for the housing market and housing affordability from the 2017 Federal Budget
Act now to fix your mortgage rate in the wake of the new 'Bank Tax'?
House Price Hope
Vegan Creamy Sweet Potato Curry
Federal Budget "Property Facts" You May Not Have Heard About
Banks Post Record Profits at Your Expense
CoreLogic Housing Market and Economic Update April - May 2017
Supercharge your day! Healthy Tea Smoothie w/ Kale and Mango
4 Parkside Properties in Perth, WA $164,000 Under The Asking & Valuation Price
Healthy Chocolate Treats
Where’s the Perth Property Market Heading in 2017?
Worried about Job Security & Finances?
What Does It Take To Be Elite At Something?
March 2017 Housing Market Update
Paul Magiatis – A Man Who Has Owned 79 Properties
Kalgoorlie Investment Properties
Financial New Year Resolutions to Keep For 2017
January 2017 Mapping the Market Report
Retirement Poll Results
CASH POSITIVE DUAL-KEY HOUSE & LAND PACKAGES
A Great Time For Potential Buyers In Perth
October 2016 Mapping the Market Report
The number of Aussie's who own 6 or more rental properties ...
Who are SECFI?

 

We are thinking about the residential property market in two phases for the remainder of 2020.

 

The first phase is the hibernation phase. This is where we are today. Enforced social distancing and lock-down measures are the rule and the property market remains effectively closed. Transactions are limited and reports on property prices are based on sparse and unrepresentative data. Most people would be well-advised to ignore commentary on property prices through this period.

 

As the year progresses and continued progress is made in containing the coronavirus, social distancing measures will be eased and the economy will enter the rebound phase. At that point, the fundamentals of demand and supply will begin to re-assert themselves.

 

We see these two phases playing out as follows:

 

         (a) First, the damage to the economy, incomes and investor sentiment will reduce demand for property. There have been multiple economic shocks in Australia’s history and a typical house price response has been in the order of negative 10-15% on average;

 

          (b) Longer-term outcomes depend on how extensive the damage is to the Australian economy and how quickly we return to more normal settings. Recent IMF projections see a 2020 GDP decline of 6.7% followed by a 6.1% increase in GDP in 2021. In our view that represents the “bull case”. Our base case is that the first stages of the recovery will indeed be rapid as tens of thousands of businesses return to work, but that the recovery of pre-coronavirus peaks is likely to be the work of some years. It remains our view that economies cannot simply be switched ‘on’ and ‘off’, but will take some time to return to a new normal.

 

         (c) Two key variables affecting house prices outcomes are migration and housing construction. Net overseas migration has been responsible for 57.5% of Australia’s population growth this century and is accordingly a material demand-side component. In the short-term, migration is temporarily ceased during the hibernation phase of the coronavirus response and that is a substantial short to medium term headwind for house prices. However, a strong migration program will be critical to budgetary repair post coronavirus and goes hand in hand with our key educational export sector. Further, Australia’s success (so far) in containing the coronavirus will certainly not damage our international reputation with potential migrants. So, in the medium term, migration is likely to again become a key house price tailwind.

 

Conversely, building approvals have plunged dramatically since mid-2017 and remain at very low levels. They will almost certainly remain at near-record-low levels during the hibernation phase and will take some time to build momentum in the rebound phase. When this is coupled with the normal lag time between approval, construction, and completion, the supply side is likely to be sticky in the recovery and further support house prices.

 

(d) It should always be remembered that there is no single property market. Each local area has its own drivers and economies and will react to the coronavirus episode differently. Amongst our cities, Sydney and Melbourne have the most diversified economies, attract most population growth and therefore tend to recover the fastest from economic shocks. Despite the fact that their household balance sheets are more stretched than other cities, we remain of the view that they are better equipped than most other cities to navigate the hibernation and rebound phases. Similarly, historical observations are that economic shocks tend to disproportionately affect the most expensive housing deciles, and sometimes the least expensive deciles as well. Typically, the middle deciles – the family homes of “middle Australia” tend to be more resilient.

 

Overall, we remain of the view that housing will be among the most resilient of asset classes to the economic shock that Australia has and will experience as a result of the coronavirus. That is, of course, because of housing’s role as an essential consumption good, as well as an investment. No matter how bad the economic data, people do still need somewhere to live. We have positioned our portfolios with weighted average loan to value ratios around 63% and have high conviction that this presents a strong margin for safety against likely house price outcomes.

 

Is the risk moving forward higher unemployment and mortgages in arrears?

 

In the short term, Australia will undoubtedly see higher unemployment and borrowers who are unable to pay their mortgages as a result of the economic hibernation phase of the coronavirus. Most lenders, including La Trobe Financial, have already activated their pre-existing borrower hardship frameworks to assist borrowers through this phase. These frameworks typically allow borrowers to defer repayments for a few months until incomes normalise.

 

There are a number of reasons to believe that the impact of the hibernation phase on arrears will not be as dramatic as some are projecting. As well as the flexibility of hardship arrangements, we note the following three factors:

 

(a) Nearly 40% of households have mortgage prepayments in the form of redraws and offsets of at least 12 months and the RBA’s April Financial Stability Review assesses most households as being in good financial health. That is, many households are entering this period with substantial buffers;

 

(b) The unprecedented $130 billion JobKeeper package will provide 70% of the median income (and close to 100% of the median income in the industries most affected) and for many borrowers will support both living expenses and all or part of debt obligations through the hibernation phase; and

 

(c) Further flexibility is provided for borrowers in the form of their ability to access up to $20,000 from their superannuation funds to support their living expenses, including debt obligations, in this period.

 

Longer-term trends will, of course, depend on how quickly the economy rebounds and re- employs the labour force.

 

How will all of this affect small businesses and their loans?

 

Small business employs 44% of Australia’s workforce and is in many cases a key driver of the dynamism and entrepreneurial spirit that, over times, transforms economies. It has long been a point of pride for La Trobe Financial that our approach makes capital available to this sector in a way that the mainstream banks have been unable to replicate.

 

In aggregate, small businesses tend to have lower buffers than larger businesses and for that reason are exposed to periods of income interruption. For that reason, it is appropriate that much of the Federal and State government stimulus packages are targeted chiefly at the SME sector. However, small businesses tend to be nimbler than their larger counterparts and are likely to experience the upswing of the rebound phase more rapidly.

 

In terms of asset performance, portfolios of business loans without real asset backing are likely to experience heightened stress through this period, although there is no doubt that the coordinated government responses will provide a material lifeline for many.

 

Where there is real asset collateral backing the loan, the SME borrowers will benefit from increased flexibility and, critically, time to rebuild and restructure their businesses as the Australian economy enters the road to recovery.

 

 

Republished from Sharecafe.com.au

By Chris Andrews

SECFI

Level 11 Brookfield Place

125 St Georges Terrace

Perth WA 6000

 

Phone: 08 9288 4553

Fax: 08 9288 4400

Email: info@secfi.com.au

Subscribe to our Enews