How economic trends could impact your portfolio in the mid-term
In this episode of The Smart Property Investment Show, IPA’s general manager of technical policy, Tony Greco, gives hi...
As the COVID-19 pandemic continues to have an impact on property prices, investors are being reminded to stay calm and remember the fundamentals of property do not change.
During a recent episode of Investing Insights, Right Property Group’s Victor Kumar and Steve Waters explained their previous experiences and what property investors should do during a period they are calling the global virus crisis (GVC).
“We’ve been through a version of this before with the GFC and this being the GVC. So we know how to change and re-strategise to cater for today’s market, but the fundamentals never change,” Mr Kumar explained.
The property investors highlighted the importance of different dynamics during different market cycles as most investors have only experienced strong gains during the recent market boom.
“The reality is most property strategists out there are products of the recent boom markets. There are very few people that can say I have started pre-GFC, gone through the GFC, stayed invested and came out the other side unscathed,” Mr Kumar said.
“Most people can’t look at how to correct in today’s market. A really simple thing in today’s market is looking at the rhetoric out there.
“So CBA says a 10 per cent decline, AMP says there is going to be a 20 per cent decline, some say a 30 per cent decline.
“Whereas I think there will be a 5-10 per cent decline because unlike the GFC we are looking at a scenario where money is still very liquid.
“There is a lot of incentive being thrown by both federal and state governments and most importantly the interest rate base has been the lowest it has ever been.”
Mr Waters explained that this is actually not the most challenging time for experienced buyer’s agents, with APRA’s freezing of regulation being worse for investors.
“The most challenging times, on behalf of our clients or speaking for our clients was when APRA intervened and changed serviceability to 7 per cent,” Mr Waters said.
“Because the want was there but the ability wasn’t, which was quite different from the GFC where there were elements of not wanting, so APRA’s handbrake was the most challenging.”
Mr Kumar believes the psychology during this market is completely different than during the GFC.
“If you look at it from the GFC and the GVC the fundamentals remain the same apart from the liquidity of money and the only thing that changes your outcome is your psychology,” he said.
“If you approach this with the right psychology, that you need to simply adjust your portfolio and protect your deposit as you’re buying the property this is no different.
“In fact people that have come off the tail end of a calamity, be it a GFC, an election, post this scenario, those that come off the back of that usually have accumulated immense wealth.
“If you look at properties bought back during the GFC, we were buying properties at relatively low prices, yields were fairly high, and despite higher interest rates, the value has pretty much doubled.
“That is what is likely to happen with the property market [this time]. Yes we will see some decline because some people will not be able to hold onto a property due to change of employment, change of daily life and it’s natural [to have] some level of change of wealth from the unprepared to the prepared.
“But we will end up seeing strong recovery in markets with good fundamentals.”