CONVID-19 'Fear Gauge' creates residential property surge!

CONVID Property Surge - CONVID-19 'Fear Gauge' creates residential property surge!

CONVID-19 'Fear Gauge' creates residential property surge!   

World wide panic now has Investors asking "How safe are our banks?" 

Millions of cashed up investors around the world raced back to residential property this week but is it too late for Australian Investors to avoid the coronavirus financial bloodbath?

Global stock market losses have topped 16 Trillion U.S. Dollars in just 52 days since fears over the coronavirus gripped the world. This often daily bloodbath has created a level of panic that is touches every corner of the globe, creating a new wave of cashed up investors desperately seeking a safe haven in 'bricks and mortar', but it looks like even this asset class is about to be sucked into the eye of the storm.

Global Stock Market loses - CONVID-19 'Fear Gauge' creates residential property surge!

Unfortunately some industries will not survive

Conservation forecasts suggest that we are just at the start of a global economic disaster that could last at least the next six months. Whole industries are not expected to survive 2020. Australian aviation experts made the grim forecast this week the coronavirus will bankrupt nearly every Airline in the world by May 2020 unless governments step in to save the industry. The Travel, Hotel, Resort and Cruise Ship industries are all an obvious high risk of collapse. Other industries expected to be hardest hit are the Education, Manufacturing and Wholesale industries. Just imagine how an already fragile the Retail sector must be bracing for many catastrophic months ahead. Whilst each of these industries, and many more, will undoubtedly experience immense impact, investors find themselves imagining a relentless global impact to stock markets at a magnitude never seen before.

Stock market 'fear gauge' set to explode

The sheer volume of trading has a direct link to the level of panic. Wall Street tracks this stock trading movement via a graph known to investors as the 'fear gauge'. Like a small boat in huge seas, projects suggest huge swings up and down moving forward without anyway of providing even a glimmer of comfort to investors. When stock analysts are challenged to forecast what lays ahead the unfortunate news for investors is that it's most likely to get worse before it improves.  

Wall Street movement graph2 - CONVID-19 'Fear Gauge' creates residential property surge!

Panic triggers ASIC to step in and take extraordinary action

Record breaking volumes of people attempting to unload shares this week triggered the need for ASIC to step in and impose extraordinary controls on the share market. To avoid an entire market shut down automated trading machines were reduced in speed by 25% to slow the burden on the strained capacity of the ASX. This extraordinary requirement provides a clear insight into the level of fear rippling through the Australian stock market as Investors face the challenge of pulling out of the market and accepting a substantial loss, or holding on and running the risk of potentially suffering life changing losses they feel they can never recover from.

Wall Street movement graph2b - CONVID-19 'Fear Gauge' creates residential property surge!

Why are Investors selling?

Common sense would suggest that investors will only suffer a loss on share values if they sell. If they hold, share values will eventually recover and no loss will be experienced. The issue with this scenario is the massive volume of investors who feel they don't have time (due to their age) to recover financially if values drop further. Many feel they would be better off taking a loss now, rather than risk getting wiped out entirely. The challenge is where do they put their investment funds? 

How safe are our banks?

It's times like these that we should feel so grateful to live in Australia. Whilst we often winge about the banking system, we also have one of the safest banking environments in the world. But safety is measured in many different ways and most investors can't get their heads around the idea of having large deposits sitting in bank accounts without any significant financial benefit to the investor. Even worse, some countries around the world now have banks offering negative interest rates which requires investors to pay the banks to hold their savings!

If investors 'cash out' of the free falling stock market there is also concern around leaving large deposits in a bank if a global financial crisis eventually results in a banking lock down. Panic around this possibility will potentially rise over the coming weeks if bank impose restrictions on cash withdrawals as concerns move from 'toilet paper' to 'cash on hand'.

Why are investors rushing to residential property?

As investors weigh up all factors a range of options quickly disappear and property becomes very attractive. Of course within the conversation around property there are many sub categories available to investors, but residential shines through due to it's risk profile being much lower than properties accommodating businesses, ruling out commercial, industrial, office, holiday accommodation, etc.  Of course not all residential property is the same, investors will need to consider stock levels some markets are slightly oversupplied (such as Sydney) and this situation will only get worse before it gets better.  

The attraction to residential property is based on a core belief deeply entrenched with Australians around the safety of 'bricks and mortar'.  I think investors even expect that the property may experience a period of negative growth before the end of this challenging financial period, but are drawn to the attraction of locking down a property in a market they are confident will eventually bounce back strongly resulting in a great investment over the next 10 to 15 years.  Investors also now understand that many of these high quality markets offer rental yield that is often double that of an investment property in Sydney or Melbourne. 

So why will residential property suffer over the coming months?

Even with high levels of demand currently being experienced for residential property in Australia it simply can't avoid a range of coronavirus challenges. Of course there are a range of national issues we could touch on, such as job losses that could affect a tenants ability to pay rent, but many of these issues can be managed and risks can be mitigated through better investment knowledge.  Unfortunately it's the issues that we can't control that will hit  the residential property market hard, and very soon!

Over the next few weeks I expect to see properties that were listed for sale to be removed from the market.  A growing number of sellers will decide to take these properties off the market to avoid open homes, inspections, etc.  Sellers will not want to commit to spending thousands on marketing campaigns or be faced with the idea of potentially having to move house during the height of the CONVID-19 crisis.  Whilst low volumes of listings would usually result in massive price growth, it's hard to understand what effects a growing volume of mortgage defaults, job losses and lack of general market confidence will play and I can only imagine the national property market will grind to a holt pretty quickly. 

How can an investor capitalise?

I think there will be incredible opportunities for investors in 2020. Cashed up investors will obviously be in a strong position to benefit the most, but I also expect that many opportunities will surprise investors who have had trouble entering the Sydney and Melbourne property markets in recent years. I can even see how investors could use small cash balances (no need for a loan) to cleverly control property during this challenging period.

Please watch this space for more details soon.

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If you haven't already downloaded my latest National BIG WEALTH SHIFT Report, here's the link.

This Report outlines the biggest single movement of wealth we have ever witnessed in Australia, and how property investors can profit.

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SEQ Big Shift Report

Keep an eye out for my upcoming SEQ Big Shift report where I'll break down a number of key elements that are creating a 'perfect storm' for informed property investors in certain postcodes within the emerging hot spot for property investors.


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