SSS – Jan/Jun 2020

G’day All,

Hope you’re all keeping safe and sane during this pandemic…

Much has been said lately (mostly negative) on how COVID-19 will affect Australian property going forward. Whilst no one can definitively say what will happen, we can use history and knowledge of cycles as a guide:

18.6-year Real-Estate Cycle – Defencewealth clients will be familiar with, or at least have been introduced to the 18.6-year cycle as taught by Philip J Anderson through his 24-hour property clock and his book: The Secret Life of Real Estate and Banking.

As investors, we use this knowledge to guide our investment timing, combined with fundamental and technical data to determine which property markets might likely provide the best wealth-building prospects, and in an efficient time frame. The clock (first seen by me in 2013) is on record calling for a mid-cycle slowdown in 2020-21, which is where we are now with COVID.

A key point about mid-cycle slowdowns is that whilst a short recession may ensue which affects the share market, property (land) values remain largely unaffected. This of course is a generalisation and other cycles relating to commodity prices and infrastructure need to be referred to when deciding on where to invest.

Going forward, we’d suggest that property will indeed remain stable. However, as we shift into the second-half of the 18.6-year cycle from mid-2021 onwards, the locations that had significant capital growth between 2012-20 (read Sydney/Melbourne/Hobart) will likely stagnate or possibly decline in the run-up to 2026-27.

The states of QLD, WA, NT and SA will, in my opinion, be key to watch and invest in as their economies are primarily built around resources and agriculture, which usually become high-demand in the second-half of the global real-estate cycle.

Another point worth noting is that governments and central banks around the world, including our own RBA, have said they will do whatever it takes to ensure the economic and financial system doesn’t implode. This means that house prices will not be allowed to mass-crash by ensuring people can continue to pay their mortgages and rent. Examples include JobKeeper programs, money printing, bond buying, first-home buyer grants and guarantees, and even direct stimulus payments like Rudd’s $900 back in 2008/09.

Investment home loan rates are now below 3% and gross yields on previously recommended properties are tracking between 4.5%-5.2%. Vacancy rates have been tightening in landlords’ favours (3% is considered a balanced rental market) with April stats from SQM Research showing:

Adelaide (Seaton, Exeter): 0.5%

Gold Coast (Coomera, Pimpama): 2.1%

Ipswich (Ripley): 2.7%

Logan (Greenbank): 3.1%

Toowoomba (Glenvale): 1.8%

Yes, there will be some further fallout in the months ahead, but not to the extent that most are implying. Once we get over this COVID speedbump and society’s demand for home loans picks up again, and at historically low interest rates, this will likely fuel a surge in property demand in areas where new jobs will be created; think resources, agriculture, major infrastructure and defence.

We will of course need to exercise caution and adequate planning as we get closer to 2026-27, being the anticipated peak of the cycle, but until then, maintaining a long-term view especially now will be important. Helping you build sustainable wealth that will provide for you and or your family’s future endeavours is our primary mission.

Stay Safe!

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (min 10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Phillip-J-Anderson-Property-Clock

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