These points come to mind initially:
- As bad as it is, it is short term, not forever.
- 90% of success throughout history comes from holding on during difficult periods when others let go.
- The banks have already said they will give 6 months holidays for mortgage payments if required. We cannot imagine many/any Canterbury clients needing to rely on this. Our structures and plans are too tight.
- Canterbury do not believe we will have tenants in difficulty. Our properties are always where “middle Australia” lives i.e. a variety and cross section of occupations, incomes and ages (i.e. not in locations with lots of young people, hospitality workers, tourism workers) We study these things before we ever settle on a new location. This is exactly why we have never done inner-city. We have always seen it as vulnerable.
- As at March 2020, Australia’s unemployment was running at 5.1%. The worst-case scenario points to unemployment rising to 7% to 10%. That still means over 90% still have their jobs – and the government are giving extra support to the unemployed during the crisis.
- We live in a global village. What happens elsewhere in the world is of great significance. US unemployment was recently running at a 50 year low of 3.5%. As of April 2020, it had merely increased to 4.4% – and the bulk of the layoffs were temporary. That’s hardly Armageddon.
- Canterbury selected locations have a vacancy rate of only 1% or lower. If the Coronavirus event doubles it to 2%, there is little relevance to us. After-all, the definition of full occupancy is 3% or under (this allows time for people moving in and out) Just yesterday one Canterbury property was listed for rent. It had 6 applications, two of which asked to move in today (even before the cleaning could be done). In any case there will be Government relief for tenants.
- The only vacancy problem would be for “non-Canterbury clients” who without our guidance bought in lower quality blue collar locations e.g. Brown Plains already with a vacancy rate of 5.9%. The owners and renters in those areas are of lower financial quality. If their vacancy rate doubles to say 12%, that would be significant – for them, not for us. However even that scenario would leave 88% of properties with a tenant – hardly a horror situation.
Housing has always performed well in Australia in past economic shocks. Property “transactions” might fall at such times but the impact on “values” is always negligible. Here is a quote from Corelogic this week: “Transaction activity is likely to be impacted more than market values. Stimulus measures including emergency level monetary policy settings and a surge in fiscal spending should cushion the impact”.
Some journalists over the years might have referred to property falls in value over 10% in past times, but those comments were based on either a lack of correct information or a reference to particular pockets such as Cairns during the pilots strike or mining areas when the mining boom ended (both locations Canterbury would never have entertained).
We cannot find overall value drops over 4% in the overall property market in Australia in over 100 years – and Canterbury selected locations perform better than the norm.
Share market losses are not predictors of housing values – they are not inter-connected nor related e.g. in the 1987 “Black Monday” stock market crash, the Australian stock market lost 23% of its value. At the same time, housing values were unaffected and actually rose 3.5% that same year. It is a known fact money flows strongly from the share-market to the property market during volatile economic times. Property capital gains in the very next year – 1988 were 24.8% , in 1989 gains were 29.8%, in 1990 the property gains were 10.3%. It seems that when bad things end, the brakes come off and optimism springs to life.
The property capital gains continued for four more years in 1991, 1992, 1993 & 1994 – before a mere 2% fall in 1995 – and that’s the only real property fall in the past 50 years. Then the property capital gains started once again. Property values actually doubled during the 4 year period immediately after the 1987 stock market crash. Imagine being one of those people who avoided the property market in 1987…..…because of the share market!
This time around, we have some advantages over the 1987 stock market crash. Interest rates are so low, it is almost like free money. Government subsidies and stimulus measures mean everyone is protected or at least cushioned. That didn’t happen in 1987.
Now is not the time to second guess or strategize. When the capital gains come, they might come “thick & fast”. By the time you read the newspaper and see the bad days have ended and the boom has started, it is last quarters news and you will have missed the boat. The best way to guarantee yourself of catching the capital gains (whenever they come) is to continually own assets. That’s what Warren Buffett does. His focus is on continuing to roll and enlarge the “snowball” and leave guessing and strategizing to others.
Australia does not have “one” housing market. It is tempered by the composition of the local workforce, and the state of the particular local household finances. Figures are provided by ABS as an aggregate. There are always pockets out performing and under-performing. Finding them is what we do for a living.
Canterbury publicise a 10 point checklist on our website with regards property selection. We don’t publicise another 23 items on our checklists because we chose to protect our intellectual property. However, we will now reveal one of the 23 items. We avoid markets/locations predominantly involved in the hospitality or tourism industries. See point 4 above. These are vulnerable locations and are being impacted by the Coronavirus as we speak. Canterbury operate only in “middle Australia” where any effect of the Coronavirus will be merely around the fringes, not front and centre. The below is a sample of the sort of statistics we work with to protect all of us.
We all know about the recent share market volatility. Such events lead some people to become frozen, lose their confidence and lose their chances of advancing their situation. The last big share price drop like that was in 2011 and Australian real estate values lifted at the same time.
Property is not volatile like the share market and this is the reason.
Shares area a liquid asset – you can easily buy and sell them every day. 100% of share owners are investors (there are no owner-occupiers/you can’t live in a share) When something comes along that looks like bad news, everyone can run for the exit doors at the same time and values can fall quickly.
In contrast, real estate is an illiquid asset. You can’t buy and sell on a daily basis – on a whim. Seventy percent of real estate owners are owner-occupiers – they don’t and can’t sell whatever happens. The other 30% are investors and few of them would sell because property is such an illiquid asset. Real estate owners can’t and don’t run for the exit door all at once like share owners. That’s why property is such a steady safe asset class. In all history any fall in value has been minor (a few percent) and is quickly recovered.
Housing is a consumption good. It’s not optional, you need it to live in. It can never be like the tide or the share market where people jump in and jump out.
This explains why share prices are volatile and real estate is a sluggish asset class that just plods along on it’s inevitable upwards march. The below will give a visual on what we mean.
The main point in all of this is that the present drama is temporary, it’s not permanent. As Scott Morrison said, once this is over, the economy will enjoy a catch-up surge. Josh Frydenberg said: “The Australian Economy will bounce back stronger than ever following the Coronavirus”. Whenever the next wave of property capital gains washes through, the people who own the most properties will gain the most.
You shouldn’t leave your wealth sitting in cash or your equity in limbo because when the inevitable property capital gains come, you risk being left standing behind the curtain while everyone else enjoys the ride.
Once the coronavirus is over there will be a rush back to property. All the while (in the meantime) the population pressure would have continued to increase along with all the other drivers of real estate prices. The past pent up demand will be appearing at auctions alongside the new fresh demand. That’s why we believe there will be a surge in real estate prices once the present issue has been put behind us.
Solid plans and strategies ride along perfectly well in good and bad times. “It is only when the tide goes out that you can see who was swimming with no swimming togs”. Canterbury wear Louis Vuitton swimmers. Our structures and strategies see us succeed and sustain through the good and bad times.
As Warren Buffett, the greatest investor of all time says: “Be fearful when others are greedy; and greedy when others are fearful”. Now is the perfect time for us to be greedy. Most people know of this saying – but they only say it, they don’t implement it.
The problem is that we are all fed a concentrated stream of negativity from the media, as if the problem has no ending. It is never really that bad. This frightens some people and has the effect of depriving those well-meaning people from acquiring the wealth they would have otherwise enjoyed.
Finally, a word of caution – anyone who got too negative about future prospects in the last really major pandemic of 1918-19 missed out entirely on the “Roaring Twenties!” What a prosperous time to miss out on! It’s much easier to think up negative things than positive things. The monetary return for being a negative thinker is very low. Positive people get the cream.
“He who dares wins”. “He who hesitates is lost” “Fortune favours the brave”.
NOW WE WILL TALK ABOUT WHY BRISBANE IN PARTICULAR IS THE PLACE TO BUY.
Let’s start off with this link on all of the significant infrastructure occurring in Brisbane just now – far more than any other state. The benefits of this go on and on for years, well after the coronavirus becomes just a memory.
https://brisbanedevelopment.com/brisbanes-top-15-major-projects-2020/
Brisbane real estate prices are presently running $160,000 under the long-term trend. As everyone knows, prices always revert back to long term trend at some stage and then go above it. This is inevitable and the only way to be certain of catching such a wave is to own assets at all times. This knowledge is like having endless money in the bank.
Also, there is an elasticity between Brisbane and Sydney prices. A number of times over the decades, Brisbane has stretched back to just 57% of Sydney prices – never any further behind than that. A number of times Brisbane has crept up as close as 92% of Sydney prices – never any closer. Just now Brisbane prices are [guess what] back at just 57% of Sydney prices. There is only one way to go and that is up. It is Brisbane’s time in the sun now. This knowledge is also like having money in the bank.
With that in mind I can say that Canterbury are presently in the middle of our biggest month ever. It seems to be a case that in volatile times people flock to the safety of real estate and “bet on a sure thing”.