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The Black Swan Event the Economy didn’t see coming…

Suburbanite are calling COVID-19 the BLACK SWAN EVENT that no one saw coming.

{{ A Black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black Swan Events are characterised by their extreme rarity and their severe impact }}

It will have a direct and fast moving impact on the economy

Suburbanite Principal, valuer and property commentator, Anna Porter, is not here to tell you it is time to bag a bargain, and yes, some might see this as an opportunity to buy well, but many are just trying to hold on tight to what they have worked so hard to accumulate.

“We, like many others, came into 2020 with a lot of optimism for 2020, Canberra was in the top two strongest performing markets in the country for 2019 seeing month on month growth in values, and QBE released their market forecast report at the start of March,” says Porter.

“The report positioned Adelaide and Brisbane to be the top two performers over the next 3 years with a predicted 20.3% for Brisbane and 12.7% for Adelaide median house price growth (please see graphs from QBE report below),”

“But only moments into 2020, the virus has hit the globe and the economy has ground to a halt, with mass job loss throughout the country.”

So what does this mean for investors who are facing potential income loss or tenants going into rental arrears?

The Federal Government made a statement on the 20th of March, 2020, advising that there will be imminent changes to tenancy legislation to allow tenants to access hardship measures under certain circumstances.

What are tenants’ rights for ‘stop rent’ and hardship claims?

“Each state will need to carve out their own legislative controls around this and we expect to see more information coming out state by state over the coming weeks,” says Porter.

“Some states such as Victoria, have already put in interim measures that state tenants can apply for hardship and are firstly encouraged to mediate with their landlord/agent to come to a payment plan or period of time by where they have an agreement on rental payments or pausing payments,”

“They will need to provide evidence of this and the trigger to apply is loss of income or reduction in income. This is currently not legislated and is a guidance note only and assessed on a case by case basis.”

We expect other states will follow a similar approach to Victoria and push this through as legislation in the coming weeks.

Tenants will likely need to have a trigger to apply (loss of income) and will need to provide proof, but this is yet to be confirmed and developed into a framework.

What can investors do if your tenants stop paying?

“Speak with your landlord insurer to find out if you have any coverage under your policy for loss of rent,” says Porter.

“Speak with your bank about a ‘repayment pause’ on your home loan and access any savings you have to cover payment in the meantime,”

“You can also speak to your accountant about accessing any Government grants if you are a small business/sole trader to take pressure off.”

Porter also advises you work with your managing agent to see if they can help the tenant find a more affordable rental and reoffer your property to the market, if there is interest in your location.

She says this is a good time to stay close to your managing agent for real time advice on the market.

Porter also stresses that if you are self-managing, look to get a property manager on board as their expertise in this time will be invaluable to you.

Fair trading websites for the state your property is in has plenty of information for you to look at,” says Anna Porter.

“You can also access information from your property manager and government websites.”

According to Porter, now is not the time to panic and sell your property as there are many lifelines available and we will get through this time.

“Once out the other side, there will be increased demand and a stronger economy and increases in value,” she says.

“If you have no choice but to sell, we urge you to get in touch with the higher performing agents in your area as now is the most important time to use an agent with experience and a proven track record.”

Porter also addresses some other FAQ’s.

Suburbanite and Anna Porter have been inundated with questions around will the market crashing.

“The thing that triggers a market crash is mass unemployment and for prolonged periods of time,” says Porter.

“So, if this situation lifts in the next few months we should be able to limp the market through relatively unscathed,”

“However, if the economy falls in to recession then we do need to be prepared to see value declines across the country.”

Anna has also touches on the buying opportunity that many are caught up in.

She explains that for some people they will be able to pull the leaver and buy shares or property while the prices are suppressed. But this is not the strategy for everyone.

“Some people should definitely consider investing now but not everyone,” shares Ms Porter.

Below are some of the criteria we have put in place to safeguard our client’s and investors in general for a self-assessment of weather you should invest or wait it out. It is important not to invest if you meet some of the following criteria:

  • Your job security is at risk
  • You don’t have stable income
  • You don’t have any savings behind you
  • You would not be comfortable with the property going backwards in value more after you purchase it, before it goes back up
  • You may need to sell the property in the next 12-24 months

Anna Porter welcomes discussion on the opportunity’s and the risks of investing in this climate.