How Will Corona Virus Effect The Property Market? Commentary 11/3/20
The COVID-19 Corona Virus is have a big effect on the world and is also starting to affect Australia too (where can you buy toilet paper these days?). How will this all play out and how could this potentially effect the economy as well as Australian property prices?
In this commentary we talk about some of the key things happening as well as what the government is doing to stimulate the economy and how that may affect asset prices.
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0:55 – What are we talking about in this video?
1:58 – What’s happening with the COVID-19 virus at the moment
4:16 – Why this is important for the economy
9:24 – Looking at the stimulus packages the government is doing to boost the economy
12:10 – How what the government does affects asset and property prices
15:00 – Look at the long term opportunity
18:40 – What can you do personally?
a lot is happening in Australia right now as well as happening around the world with the corona virus hitting really hard and spreading really quickly as well as stock markets going into declines and then seeing bounce backs and going up and down and who knows what’s happening and so today I wanted to get on the line with Ben Everingham buyer’s agent from pumped on property and provide you with an update and kind of a running commentary on what we’re seeing happening in the market what we’re seeing happening with the economy and with the virus and also how this may affect Australian property prices and hopefully this will be an interesting kind of cultural comp countercultural conversation and help you sleep that at night so hey Ben how’s it going hey man thanks for color-matching today we both look good in black yeah real good so obviously the virus is spreading quite quickly it feels like just a couple of weeks ago as I are there’s a few cases this might just blow over and now it seems like it’s definitely not blowing over with places like Italy the whole country being unlocked down at the moment even locally here in Sydney schools and universities are starting to close because of people showing signs of the virus so this thing’s obviously spreading so we want to talk about that first because everyone who’s out there trying to get a roll of toilet paper knows that this kind of mine so I think we’ll touch on this first then we’ll look at okay the stock market and then look at global and local economies and then what I think is really interesting why should be towards the end of the conversation if you guys all stick around we will talk about some of the things that government’s doing to stimulate the economy and how this may or may not work for the economy but how it actually tends to inflate asset prices which obviously affects the property market so it’s gonna be a really interesting conversation really interesting commentary as this sort of develops so firstly coming to the virus man you and I aren’t doctors we don’t know the hell we’re talking about it when it comes to a virus but what I loved is and hopefully you can find it and link it man the prime minister of New Zealand did an incredible live on Instagram I think that has sort of gone viral where she sat down with two really intelligent women like chief of staff type people who are doctors that really broke down what the virus is how severe it is how it’s going to play out and how it’s going to affect things and you know what I am happy to know now is that it’s you know most of the time not hurting young children at this stage which is cool like you and I’ve got the kids at home and you know on the media I was like man I don’t want to take my kids to school I’m supposed to be flying to Cannes on the weekend with them I don’t want to get taken to an airport but as long as they’re not touching their faces with dirty hands you know apparently the way that these virus spreads according to these experts you know I’m just sort of looking after that sort of stuff man like trying to not get them sneezed on not coughed on washing their hands and not touching their faces with their hands and it’s gonna be what it’s going to be but what else was important was they said it wasn’t as facial as things like SARS or a bowler it’s you know not as not the most intense disease that’s ever off the world but for some reason the media’s really jumped on it and obviously governments around the world as they should be of being super proactive to help people and to reduce the fatality rate which you know is super unfortunate man and it’s going to hurt a lot of people’s families yeah so really interesting too statistic that I saw yesterday was that you know over a hundred thousand people globally have been affected with it but around 60,000 people have actually completely recovered from it so I think in the New Zealand live stream that are talking about you know eventually we’re all going to get exposed to this within the next couple of months chances are that’s going to happen but the recovery rate for a lot of people is good but then obviously there’s just they want to slow it down as much as possible because if everyone gets infected all at once and you’ve got all the people in hospital who really need that care and if there’s too many of those people the whole system you know can suffer from that but if you spread out over time it becomes much more manageable the thing that’s important about this for you and I men because people have always gotten sick like that’s been human nature I’m assuming for hundreds of thousands of years now you know why this is in poor is because when the country like Italy goes into lockdown it massively affects their business economic and government cycles and when China goes into lockdown is the major producer and consumer you know a lot of the world’s stuff it’s gonna have a ripple on effect now what I think the bumpiness in the stock market has been one you and I have been talking about the mid-south will slow down on camera for two years I’ve been saying based on Phil Anderson Fred Harrison radios and Warren Buffett’s stuff for years that 20 20 s the year that they’ve all called it so it’s not like it wasn’t coming the coronavirus just seems to be the tipping point on top of a number of other things that have really freaked people out in and outside of markets what the stock market is trying to do is price in the future declines in the value of the businesses that are trading in the market so what it doesn’t know right now is how bad the economic effect of this virus is going to be globally and what effect it’s going to have on employees business owners and company profits and so you know expecting somewhere between a 15 to 40 percent decline in the stock market in the mid cycle point would be normal anyway and that’s what the market is trying to do and what we don’t know is if the worst is behind us I don’t think it is I think it’s just going to be a bumper year or two in the stock market until people really wrap their heads around this and until we’ve got two or three quarters of information showing how the global economy economy is moving through it and I think it’s important to note that this isn’t the first virus that’s ever here it’s also not the first recession that’s ever here and as Ben said we’ve been talking about the mid cycle slowdown for years now I made a bunch of videos a year ago about the potential coming recession so it’s kind of something that we’re looking at into the future you just never know exactly when it’s going to happen but it seems like this virus may push the Australia as well as the globe into a recession whether that recession lasts for a short period of time or a long period of time that’s what we’re not sure of at the moment and how long that’s going to go on I think it’s been about 28 years or something since Australia’s a few we had a recession you know like that’s what’s scaring people because there’s no living memory of a recession and what it feels like now a recession technically is just two quarters of you know that whole economic system is built on growth it’s just two quarters where things go flat or slightly backwards for a while if you know the problem with Australia right now is where so tourism and student as well as immigrant like tilted as well as what we actually send to China and India in terms of commodities that some of the big rocks in our economy that like produce a lot of that GDP and jobs are being affected by this you know like I was talking last night at Simon’s house to my or his partner Taylor who works for Virgin like little things right like in Sydney and Brisbane 25 new girls and guys were picked as grounds like cabin staff that were being trained up the day before they’ll do to start virgin just said we don’t need you anymore now these people had moved from different states in Australia to be there completely uprooted their lives and now they’re jobless they’ve quit other jobs and that’s the knock-on effect of this unemployment rates are going to go up the economy is going to suffer GDP is going to suffer and now we have to figure out what to do in that environment so things happen man like it’s so normal to go into recession it’s not zombie apocalypse craziness it’s just manage your cash flow safely do some smart things through that and try and maintain a job and you know you’ll come out the other side in two years going well that wasn’t so bad yeah and that’s the thing recessions can be one of the biggest opportunities to invest and to actually grow your wealth because obviously the stock market is going down prices get cheaper there’s less people looking at investments so there’s less competition so there’s opportunities out there if generally if you’ve actually prepared before the recession hits and you’ve actually got that cash in the bank that you’re ready to go you’re ready to wait for the right opportunities to jump on and as Ben said it’s probably going to go up and down a bit maybe for the year until we kind of find a level ground and actually work out what’s happening but I guess no one really knows what’s happening so I think looking at the global economy it looks like we’re gonna see you know some issues in a bunch of different countries in the global economy in terms of like like use Italy as an extreme example and being unlocked down and losing all their tourism and all of that sort of stuff happening that’s going to affect that country and then have a knock-on effect to other countries as well and that could affect the Australian economy too but I think what’s really interesting looking at this as it develops is looking at the stimulus packages that the government’s are trying to put in place or that are planning in order to actually bring us out of this so once the worst of the virus passes let’s kick the economy into high gear is what they’re gonna be trying to do you know Ray Dalio the most successful more successful than Warren Buffett in terms of trading performance over the last 40 years like in his hedge fund wrote a book a couple of a year ago I think he released that called big debt cycles he looked at 17 of these major events around the world in the last hundred years and he talked about four or five levers that the government can pull to get ourselves out of these environments he wrote it for government so that they could have a better idea of what to do now the first lever that you’re seeing all around the world is lowering interest rates it’s the easiest one to pull you know if my interest rate on my home loan drops by one percent that’s four to five ten thousand dollars a year immediately in the pocket of extra income that I have and that makes sense the next one is helicopter money where they drop money kevin rudd did it in the last year see very effectively it was called the baby bonus I also remember at one point when I was at uni during that GFC one day I got a thousand bucks in my bank account literally went and spent it all that weekend which low-income people do so they’re talking about a focused helicopter jump to the lowest 25 to 40 percent of income earners in Australia because they know that those people have a much higher tendency like the idea that you need to go and spend it another thing that they’re doing or talking about which was scheduled for the next year that they’re bringing forward June is quantitative easing which is just printing money horrible if you have lots of cash in the bank amazing if you have assets and you’re holding them long-term because it devalues money that artificially inflates asset prices and then the fourth one that they’re talking about is like infrastructure spending which is seeing everywhere at the moment plus you know remember the sole the rebate doing the GFC and the home installation rebate the problem with like giving really easy money to people that don’t really have the same ethics as you and I is that people do get hurt like people got hurt from solar people got hurt from insulation but it can easily create 500,000 jobs like that and a lot of people will benefit from that because it can kick jobs back into gear so they’re the things that the government is looking to do at the moment they’re positive levers that they can pull which will might not have an effect this year but will certainly start having an effect by mid next year and I think what’s really interesting to look at with lis these levers as well is that they’re not perfect and they’re not necessarily working in the way the government wants and this is what’s really important to look at as an individual investor because you’ve got the virus happening you’ve got global economies the Australian economy effectively what matters to you is what’s happening with your bank account what’s happening with your investments and your asset prices and you look at the things that the government’s trying to do like lowering interest rates quantitative easing etc to try and boost the economy the goal is to put more money back into circulation to get people out there spending but that doesn’t necessarily always work exactly as they plan to just have this completely healthy economy happening and the US did quantitative easing back in 2008 or has been doing it since 2008 you can read some more world research articles on that if you’re interested in it but I remember looking back on that and doing my research into recessions and they’re doing this but did it really stimulate the economy as they wanted you know probably not it’s more like that quantitative easing then went into inflate asset prices so inflating share prices inflating property prices as well so it’s like it kind of helps the economy but then it also created this situation where rich get rich are poor get poorer because if you already own assets then because they’re printing money it’s not really worth saving money anymore then people are investing in these assets and inflating those prices of them you know this has been happening for hundreds of years and that’s what we’ve got to remember like every time we get a virus or a mid cycle slowdown or a GFC people go this time it’s different and that according to Benjamin Graham is like the most dangerous word in like trading history like we always forget history because so many people have a short-term bias and I just always think longer-term I think where will I be in 15 years if I make this decision today you know if I can buy Brisbane 10% below market value this year on the back of a 13 year flat marketplace where could I be in 15 years if I buy it then versus waiting five or six years when it’s worth a bit more or you know and a client in America I was talking to him he’s in Chicago Mitch and his herb share trader as well as a property guy he’s like American Airlines is 45 cents in the dollar right now like that probably represents I’m not a traitor I don’t know anything about the company’s financials but a company like American Airlines you assume is gonna survive something like this or if not get bought out by someone else who will help it survive it’s like when goes on sale like that and you want to hold that for 15 years that you know these represent incredible opportunities yeah and I think that’s a really important note and something that people need to get into their heads as well I saw Warren Buffett talking about this that he’s saying when you’re investing in stocks probably a better word for stocks is investing in a business and you’re buying part of that business looking at the long term looking at you know 10 15 20 years down the track is this business going to be better than it is today or is it going to be worse and soft and we just get fixated on what’s happening right now with the stock market what’s happening right now with the coronavirus what’s happening right now with property prices and the market that we actually forget to look at 15 years and sometimes the picture is so clear 15 years in advance and be like okay if I bought property today and I did it in a way that reduced my risks are bought in a good suburb in a good city didn’t over leverage myself so get myself in a horrible position but had good cash flow so if I invest wisely if I just look forward 15 years what are the chances I’m going to be better off and that property is going to be worth more and rent for more versus what are the chances that that property is going to be worth less and rent for less and it’s not like as you stretch out the timeline but look back 15 years and say well property’s cheaper back then where they cheaper to rent where they cheaper to buy back then and look at all the recessions that have happened in the last you know 30 years 50 years etc there’s been bumps in the road there’s ups and downs obviously you don’t want to buy at the peak of the market as then you lose money and it takes time for that to recover but looking at the long-term picture that’s how you set up your wealth that’s how you achieve financial freedom not by just sitting on the fence and watching this unfold and never actually doing anything so you’ve got to take into account what’s happening right now to make better investment decisions but don’t just be frozen and never do anything in your life at all that’s it man like you know what people mainly focus on when investing is what did you buy something for them what’s it worth and it’s if you’ve been holding long term that always sounds great what people forget is the whole middle over 30 years that going from there to there actually looks like this all the way through like the average decline in the GFC environment in the stock market for the last hundred years has been 48 percent the average decline in property markets globally at that time has been an average of 30 to 35 percent the average decline of the stock market in a mid cycle slowdown has been somewhere between 15 and 35 percent for the last 80 years so just you know knowing that stuff is just peace of mind right like knowing that these things happen set prices long-term go up when I look at a property that I’m buying I’m looking for a market that has the potential to double as quickly as possible and I think if I get 4.8% per year for 15 years on my asset in Sydney Melbourne or Brisbane I’ve doubled my money I’ve taken a million dollars and turned it into two then can I take it from 2 and turn it into 4 from 4 into 8 you don’t have to be breaking records or doubling your money every 7 years to be a really successful investor and with the strategy that you and I have which is cashflow and growth you don’t have to have fear about losing your job or your business failing or you know losing customers because the properties will hold themselves throughout these environments anyway yeah so I think looking at it personally some things to consider right now and obviously this whole situation is going to develop both with the buyers and the economy and so we’ll keep updating you guys we’ll keep doing commentaries like this if you like it and talking about where we’re at now but something to consider as this develops is if you are investing it doesn’t seem to be the time to completely over leverage yourself and expect that the Sydney property market is going to you know double in the next two years or just relying on that capital growth in an area and then being in a negative cash flow situation really badly that can put a lot of stress on you and a lot of difficulty on you if we do go through a recession if you are one of those people that loses your jobs or if you have to take a pay cut or something like that then that investment can eat you alive so I’m not trying to say what to do or anything but it’s more just be aware of the risks that you’re taking and try and mitigate those risks and so investing in property like we talked about where you buy a property build a granny flats positive cash flow that means you’re getting more rental income coming in from those properties then you’re actually handing out or spending in expenses and so basically it’s covering itself and so whether you lose your job or take a pay cut the property that you’ve invested in isn’t asking anything of you it’s not asking you to continually put money into it it’s actually giving you a bit of money back and that can kind of see through these bad times so you can get that long-term growth that we talked about you know that’s really important what you’ve just brought up like who should be and who shouldn’t be investing in these times if your week to week if you don’t have a good savings buffer in place if your job or your industry is exposed to what’s going on at the moment if you’re over leveraged and you’ve got more money running out of your bank account each week then you’ve got coming into it then you know you just sit tight you keep your head above water and you keep swimming as well as you can at the moment but there’s a whole lot of people that you and I speak to every single week man that the complete opposite of that there’s people with great businesses with great jobs with combined income that have been sitting on the fence since the last year saying doing nothing but squirreling and way money that have 60 to a million dollars 60 K to a million bucks in the bank that have good equity in their home that have low interest rates and low outgoings that you know have fully offset home loans that are in an incredible position as long as they’re safe and they create the right plan they pick the right market and they you know execute the right strategy to absolutely crush it and for those people who like me being sit there and wait for these types of environments that are like excited about them as they come up massive once in a 10 year buying opportunity right now because whether things go on sale or not 80% of people in Australia are running around buying toilet paper right now and that means that 80% of people aren’t competing with me every week to buy property and that’s why I’m gonna buy at least two if not more properties this year it’s why my brother Simon who is going to sit out of the market this year is going to buy again it’s a buying signal when everyone else is being crazy it means that that’s gonna have an impact on certain things and it you know while they’re looking at this hand this is the him that you want to be using right now and that’s the thing that’s the flip side of a recession is there’s obviously bad things that happen in a recession but it can also be the best buying opportunity and investment opportunity of your life it requires more research and more diligence because of the volatility in the market but if you do that research if you do that diligence if you have a long term plan and then you have a short term plan of how you’re gonna survive the short term with the fluctuations of what may happen it can actually be one of the best buying opportunities of your life you know we’re not talking about going to buying everything like you know stocks right now is so volatile just probably chill out on that for a bit like Sydney and Melbourne don’t represent a buying opportunity to me at the moment because they’re still 80 to a hundred percent more expensive than they were 15 years ago you know so I’m not gonna go there like the Sydney it’s just about to hit a double top like Melbourne has already gone past its 2017 peak like when people are going feral and there’s 7080 people rocking up to an open home and they’re paying a hundred grand more than the place was worth and 400 grand than it was worth two years ago like probably chill out or sell to those people you know I mean um but for Brisbane that’s cheaper than it was with inflation twelve thirteen years ago like that you can get cash flow from as well that you can buy for 400k that looks very different to me and that’s the type of opportunity I’m talking about I’m not like just go buy everything because everything’s on sale no that’s definitely not it as well and that’s what I was trying to get across with you you are required to do more research looking at bread-and-butter properties versus the high end of the market properties and the concept there is that you know if you hit on hard times people can sell their Porsche and then they can buy a cheaper car and still live in that and so the same concept applying to properties they can move out of more expensive properties and into the more affordable end of the market and so the bread-and-butter properties that affordable end tend to be less affected by recessions than the really high end and really expensive stuff and so that’s like another factor to take into account in looking at okay what’s my investment plan going to be during this recession and we’ll talk more about that sort of stuff in the next video but if you’re sitting there and you’re thinking okay I have actually been diligent with my money I do actually want to take advantage of this opportunity and see what’s out there and whether it actually makes sense for me to get into the market right now then bender the team over pumped on property do offer free strategy sessions so you can get on the phone talk to them about your situation where you’re at and what you want to achieve long-term and create that long-term goal and then see what makes sense for you right now and what steps make sense for you to take right now whether that be sitting on the fence if you’re not in a great position or whether that be looking at these opportunities that are on the market so head over to onproperty.com.au/session and you can learn more about those free strategy sessions over there you can book in a time that suits you get on the phone to someone talk to an expert about what’s actually happening in the market at the moment and then create a plan for how to take advantage of this so again go to onproperty.com.au/free slash strategy to check that out in the next video we’re going to be talking about some of the things that you can do during a recession and some of the opportunities that happen during your recession and so go ahead and check out that video which I’ll link up down below is there anything that you want to add to this before we go Ben you know like I don’t mean to be insensitive here but I’m so excited man like as bad as that is like as an investor like I’m super excited as like a person that cares about other people I don’t like the way that this mid-cycle is kicked off because so many people being affected around the world because of this but this is the biggest signal that you’ll find in the last 10 years to actually have a crack at the right types of stuff so for me personally like I said like I invest with confidence because I’m so clear about where I want to be in 15 years and I keep moving through it but you know as you’ll see we’ve got comments you’re over the next 6 to 12 months there’s going to be bumps and bruises and hurdles all the way through it’s just how you come out of all of those bumps and bruises at the end which ideally matters and you know most of those bumps and bruises are being artificially given to us for the media right now as opposed to true ones on what’s really going on because the coronavirus has been what two or three two and a half months like a month and a half now since it’s been really headlining stuff and in that same period of time like asset prices in sydney and melbourne went up in terms of houses by five percent like this is what’s tricky for people to figure out right now like where does true value sit which we talk about in the next video versus speculative stuff like how can the stock market decline by twenty percent in three days and then increase by five percent in the next how can prices in sydney decline by fifteen percent over two years and now i’ve increased by 15 percent in six months it’s just that’s what’s confusing people and i’m thinking will great clarity for people over the next year around that yeah so go ahead check out that video on some tips of property investing during our session we’ll see you in that video or go to onproperty.com.au/free strategy to book in your free strategy session and get clear on both your short term and long term property goals until next time stay positive