Episode 118 | Current global property market: What you should know | Pete Wargent, Wargent Advisory

What is happening to property markets around the globe? And how is Australia placed?
We interviewed Pete back in 2018 in episode 24 and we brought him back to talk about the current situation of the property market locally and abroad. Pete Wargent is an internationally recognised speaker, versed in all thing property from buying to selling and all the financial components associated. Opening up on the dialogue surrounding the Covid-19 pandemic we pose the question, how will Australia thrive on the other side of this crisis and what should individuals do now and in the future to protect themselves.

Here’s what we covered:

• How does the economy bounce back from the downturn?

• What downturns are similar to what we are currently experiencing?

• Is the Government doing enough?

• What is happening to the global property market?

• How the Australian economy is performing against the global economy?

• How labour mobility will decrease.

• What will protect our economy in the future?

• How is the frontline of real estate coping during the crisis?

• Why is there a record number of loan applications?

• Why is the Australian Dollar going to suffer so much?

• Where are the scarce properties in QLD?

• What to do with your mortgage?

MENTIONED EPISODES:
Episode 24 | Pete Wargent 
Episode 115 | Eliza Owen
Episode 117 | Shane Oliver

GUEST LINKS:
Pete Wargent’s LinkedIn
www.petewargent.com

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au 

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless:www.getauctionready.com.au
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EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 2 April, 2020.

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free fool or forecaster report, which experts can you trust to get it right, the elephant in the room.com. Dot. AAU.

Chris Bates: Please stick around for this week's elephant rider boot camp and we have a cracking Dumbo the week coming up

Chris Bates: Before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial adviser or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Well today we are going to have a bit of a history lesson. We are going to learn about how the economy bounces back after recession's depressions and various other shocks. Today we, we've got a blast from the past. We're talking again with Pete origin. Pete, we spoke to back in episode 24. Can highly recommend your go back and listen to that one if you haven't heard it. One of the things Pete is best known for is his use of data and the way in which he can translate into meaningful commentary and meaningful insights into what's happening, not just in the property market but generally on an economic sense. Now let's pull these things together but also go back in time and really understand what we might be in for throughout these coronavirus crisis but also at the end of it. Welcome Pete. Thanks for joining us again.

Pete Wargent: Glad to be on.

Chris Bates: Thank you. Pay good to chat. I think the, you know, we've all given up on holding onto that. You know, we haven't had a recession for, you know, 50 years or whatever we like to say, maybe 20, but you know, I think the, you know, what's actually so bad about a recession and how does, how do we actually recover from one to kind of go back to business as usual? Is this going to be like that quick bounce back and you know, next year we're going to forget about current of ours and nothing's changed or do you say something a lot more serious?

Pete Wargent: Yeah. So I really see it's a different type of recession from what the world, so 2007, 2009 because this is actually an environmental issue. The subprime crisis was as the name suggests, the financial crisis and the fix to a large extent was financial in terms of monetary policy, fiscal policy, and a public health issue. First and foremost has to be fixed by keeping people healthy. So the financial fix can come alongside that, but ultimately, until the virus stops spreading and we've got issues there so it could drag on for some time.

Chris Bates: And so let's say you know, they do find a vaccine or we get it on the control and I watch, you know, yes, this might all happen over say six months, right? Like, I mean, everything was fine at the start of March. I know there's rumblings around the world that, you know, this was kicking off, but no one, he was really switching onto it. You know, let's say October, November, it's all back to normal. How long do you think it's going to take though for the economy to recover and what will it recover and what parts will recover better than others?

Pete Wargent: Well, I guess that's the bulk price, isn't it? If we follow a similar trajectory to some of the Asian countries like Taiwan or Korea or Japan maybe Hong Kong, Singapore, all those countries that are learned from learned their lessons from the Salas outbreak and actually took this thing along most seriously and more quickly than what he did. If we can follow that kind of trajectory, then the recovery would be very shaped and we would snap back very quickly. And the challenge would come if businesses have to go into hibernation for longer than say three to six months. A lot of businesses will struggle with the overhead. They'll start to allege revenue profits and then that's where an unemployment could really spike. So I think brought, I mean this is a very fluid situation. It's changing by the day, but I, I suspect the base case strategy will now be go for this short sharp shutdown and just try and iron this thing out once in rural and then try to open up again relatively soon because the longer a modern economy is shutdown for while the, the greater the pain

Chris Bates: She might need to see the point that it's not so much the initial sort of, you know, jumping unemployment, let's say from five to 10%, which may have already been baked in. You're saying it's more the case if we go from 10 to 20% sort of thing. If we do, we don't really learn and get gate control of Corona I guess,

Pete Wargent: Yeah, no, that's exactly it. Sorry. The government is obviously preempted. They sit alongside the other policy makers and what they're trying to do is keep people employed. There was in a lot of stood down workers in retail and tourism and hospitality, but a lot of those work is can go straight back to doing similar roles or the same role. If I can keep the shutdowns are relatively short period. If it drags on for longer course they'll be made redundant and then the rebound will take much longer as well.

Veronica Morgan: Well, there's a couple of things. First of all, I'm interested to know if there's any precedent for this sort of hibernation

Pete Wargent: Not a modern president or if you go back to world war one will both tell you that would have been global pandemics before. But I think it's very questionable. I think when he's starting to compare it to things from pre-war was simply because the policy responses today will be much more dramatic and much quicker. So if you think the response in 2007 eight nine was much more dramatic than it was in 1929 and if like this time around a central banks, they won't die. Wondering, they've gone straight to zero interest rates, straight to QA. There's all of those other unconventional measures that have kicked into gay straight away plus massive fiscal stimulus all the way around the world. So I have been global pandemics. If you go back to some of the flu, influenza outbreaks that , it's a guy, but I'm not really sure how comparable those shutdowns might be today.

Veronica Morgan: What about world war two? Is that more aligned to this one? You know, I mean it's, you had rationing, you had a lot of the workforce, a lot of the things that obviously are businesses that might've been luxuries for argument's sake would have been wound up and the essential services would have been, would have been ramped up. So are there some parallels that can be drawn from that?

Pete Wargent: There's sort of some interesting history lessons there because the world obviously went through a very, very challenging period through the great depression. But what you often find is when you have a war or there's a lot of output actually increases in terms of amendments and mostly those conscription across Europe. And I'm sorry, some of different dynamic, but as you mentioned in, in Britain I mean my dad, he's not even that old, but he can remember rationing going on all the way through until the 1950s because of the, the recovery was pretty slow. And then we had the baby boom generation. So I guess that's it there. Global war is a different thing from, from these theses just appeal sort of health outbreak and it will need ultimately, as Chris said cures, treatments, vaccines, whatever comes around.

Chris Bates: So you've probably been watching the news luck I have. Um and saying what the government's saying doing in terms of that stimulus sponsoree three. Have you, do you think you're doing enough or should we be doing more or less or the right policies or you know, someone who kinda thinks about these things. Have you gotten the other ideas and they should be doing,

Pete Wargent: I think, so far so good, I think the, in the early stages, those a few of us saying, well, some of these policies, a sort of a good starting points in terms of credit facilities and loans for small businesses, but there was no actual cash flowing. That was the big challenge in the first couple of weeks. Now obviously since then they've announced the wage subsidy, which follows a slightly different model from what we saw in Britain. But I think that's a really good step in the right direction because through no fault of their own, there are many people who have been stood down from their roles and they need their terminology they like to use is a bridge needs to be built to the other side of this at a white subsidy. Expensive. Though it is, is a really good starting point now where the I fourth stimulus package is needed. They may well be, but I guess you had addressees a rolling outbreak and they can only just policy as we go.

Chris Bates: Yeah, I think I'm, one of the things I love about your commentary is that you do try to sit in two cities, whether you do that for tax purposes, I don't know where are you domiciled, but you don't wanna be domiciled in the UK though, too much inheritance sacks, right? Yeah. So,uit tax resident Thomas Saul, he a tax resident probably over there. But anyway, you do have a lot of learnings with,uwhat's happening in the U K that you can bring here. Like I think, you know, global cities like London, there's lots of things that are happening in that say property market that we can kind of understand the Australian market a lot better. And I do after living there. What are some of the things you've seen happening in the UK property market already? Cause I'd say they're a little bit ahead of us,uthat you potentially could see happening here. Yeah. So

Pete Wargent: I suppose you're going to want, one of the GPS advantages of being British is that we have been through recessions. In fact, we've been through a couple of brutal recessions in my adult lifetime and even before that when I was growing up because he's a very much a boom bust economy births. And that's just the way it's been, especially credit driven as well. And so it does give me some comfort to know that all of these things are never much fun when you going through them eventually and often when paper have over given up hope, it seems that suddenly for no apparent reason and things start to look up again. And Australia is pretty lucky in the sense that we do have a number of automatic stabilizers. So we've seen obviously the interest rates have been cut, but the LZ Delta will probably fall to the lowest level in 20 years or so.

Pete Wargent: Plus we've got relatively low government debt. So there's a few different things which will kick in prosecuting a. So in Britain we, I mean even not that long ago, between 2007 and 2009, we had a very sharp property downturn and it felt like a very desolate place. Particularly, I think late 2009 2008 and early 2009, it just felt like this thing would never end. And yet without warning, almost a second grocery, 2009, suddenly things just started snapping back. So and now the recovery was wasn't inven London sort of came roaring back and prices all but doubled again. A lot of the regions were very slow to recover. Like I'm talking 10, 12 years, so it wasn't an even recovery that I've seen in Britain so far. I see in every crisis very different. So system in terms of transactions and a lot of styles of falling over because they're, that they'll often have properly selling a chain and if somebody drops out halfway through the chain, the whole thing falls over.

Pete Wargent: As I pulled away about two thirds of transactions and now just not happening as a result of that, the earliest indicators, characters seem to show a higher demand. It's probably dropped by about 40% through March and like they may be more like 60% over the quarter. No, I guess the other side of that is a lot of sellers are looking less likely to list as well. So it's a certain extent. Things are just going into a bit of a deep freeze. So we'll just have to see how it plays out.

Chris Bates: Yeah, I mean the whole lot interesting point about the UK. I was in the UK from 2007 to 11. I know you said that the property market in London really recovered and but you know, lots of reasons around the UK didn't, and even the London economy, I mean the vibe or the, you know, the businesses opening and have the confidence to open it takes years for that confidence to come back. So all of the businesses that don't make it through this gap you know, it doesn't mean they're gonna go and start a new business as soon as things ramp up again. And things take a while to recover. Is that Connie your observation too?

Pete Wargent: Yeah, for sure. Like, yeah, I thought you care. It people have a sort of a heart that things will just be striped back to normal because the economy wasn't doing too badly like last year. But particularly in some of those industries that were mentioned, things like tourism, it could be a long, slow haul for that to recover. So yeah, I mean as far as when things do recover there's a number of factors that are a positive for the economy and rare this dice, I will say the lowest interest rates in a generation will say that for years to come. I guess we'll say lower Dora and number, a lot of new money sloshing around the economy. So government stimulus, I think governments will be taking a much more hands on role in the economy. So I guess there's a few things that when we do come out, the other side will be very stimulatory. But it's, the timing of that is very uncertain at the moment.

Veronica Morgan: It's funny, we talk about some industries where, or when you mentioned it earlier way, say tourism or hospitality, where there will be jobs available when we get through this and when people start spending money again so they can see how it's a fairly low cost to entry compared to tourism for instance. I mean an airlines, there's a few of those might go broke. You know, massive costs of all that infrastructure or even a hotel or resort or you know, so I guess, and they're a lot more expensive to prop up and keeping business when they've got zero revenue. I guess the fallout in that, that sector will be interesting. Is that a word for it really, but I mean, I'm not so confident that, you know, there'll be that much still standing at the end of it.

Pete Wargent: Yeah. Look, they're authoring the airlines will, we'll look to towards by louts if I can get them or whether or not the government actually takes equity in those businesses. I probably should, but that's a real political, I think Karen, probably one of the most interesting things for Australia is that I've suddenly through the mining boom and then even beyond that, we've been running a very high rate of immigration. Plus. We've seen record high short term arrivals I tourists and people coming to visit family and so on. So I guess we're on the big questions, but at what point does, I guess switch back on because I feel you when we come out the other side, they'll probably be less globalization, there'll be more country based production and things like that. But Australia is kind of relied on these high rates of immigration, especially from Asia in recent years. Now I guess this is above my pay grade, but how do you even, how do you even begin to open the borders again? Are the 15 minute tasting kits that can be applied. I mean it sounds very draconian, but I can't imagine a scenario and he'd tell him sitting by the board, is it just open to all comers again, when you've got a global pandemics? I, that's a real question Mark for me is how long can it be before people are able to travel freely again?

Chris Bates: Yeah. Well, I mean that's the thing that's been driving our economy for decades really isn't it? It's immigration and kids, our population younger. That's, you know, if you come here in your 20s at some, you know, you firstly you start, you know, consuming Australians and especially if you're trained up in your skilled migrant straight into the workforce, you start paying taxes, you start consuming and a few years later you stopped buying a house. You start to feel that house. Or if you're a student, you kind of fund the universities. And I think you know, as a capita, our GDP hasn't been growing. It's just that our economy is growing cause we keep importing people. And I think that's the big question, isn't it? Can we do people around the world want to still come because the government's definitely want to encouraging that. Again, a need to encourage that. It's just whether Australia is still seen as the place that people want to migrate to

Veronica Morgan: Or do. Do we need to actually encourage more local production again instead of globalization and trying to out, you know, carve off, you know, whole entire one more the strategy without which twice to just fly off. No. Yeah. But this will change everything won't it? I mean this is, this is actually, you know, our economy, the way it's been functioning obviously isn't going to be able to continue in same way. I mean, do we think really that we're just going to go back to the way it was?

Pete Wargent: Well, that's the hard, I think one of the interesting aspects is now nobody believes the numbers outs of China are the best of times. But obviously what they are reporting is no new cases of the virus, the latest manufacturing gauges seem to suggest that the, the factories are rumbling back to life. And I mean, who knows at this point in time, but I wouldn't be a total surprise. They've turned around leashes, trillions of dollars in stimulus. So if that happens, then the demand for our commodities just like it did post GFC will be through the roof again. So there is a scenario where Australia can outs of recession. I'm assuming China is getting back to business. But yeah, in terms of you know, things like old type production, I think that's gone for Australia. I think we're pretty used a lot of our iPhone potentially. But in terms of some of those other manufacturing businesses that go hollowed out, it's hard to see how they come back because as Chris said, he's hard to compete when you've got high wages.

Veronica Morgan: Well, I think food is a big one. I mean there's been various anecdotal stories of, you know, particularly Chinese interests buying up our food resources, you know, like dairy farms and et cetera, et cetera. Even the water table I've been hearing, so, and look, I've only going on what I've been reading and what I've been hearing about, but I think we have to protect it more. This is actually about our economic, our actual security as a nation. Will it change an attitude? And this is what I'm wondering, will the attitude towards that become a little bit more cautious?

Pete Wargent: Probably. Yay. So I think that's, that's one of the scenarios I've been bouncing around is that globalization, globalization as we knew it is probably dead and it will take a long time to recover. I don't know that there was, there were issues in Europe anyway with the Euro block falling apart and the Brexit vote and this might just accelerate things. Yeah. But I think in the, in the new, it's very interested in the, just the logistics of diets that I live to that if I read a correctly new South Wales, looks like he's heading into some kind of a look downs in our area for the next three months. Sorry. And if you want to go in terms of logistics, what does that mean for things like and auctions and complete bowls? They're doing things. I barely, empire store furniture removal is, is only stuff just grinding to a halt now.

Veronica Morgan: Well, it's interesting. I've been looking at the the actual legislation on this because of course all this, these, these announced would get made and then it's up to the individual States to legislate for it. There's 16 reasons why you can lose. Well, you can leave home, right? And one of them includes, Oh, I should say and also, you know, and not a buy or there's reasons why you, the two person rule won't apply and one of them is moving house or office. So, you know, cause we were all thinking, well God, you know, you're not gonna be able to have remove lists. You kind of, you know, two people in a truck, they're not sitting. I made her in a half a pot. You know, the, the owner, the new buyer of the home moving into the home won't be, it'll be inside the home or outside the home at the same time as a removalist.

Veronica Morgan: I mean, logistically, absolutely nightmare. But no, that's actually been noted as a specific reason that you can, you can go outside of these some restrictions. The viewing of homes is interesting because an agent and one buyer at a time can be inside the premises or outside the premises. So, from what I understand, that means if there's a husband and wife or a wife, a wife, or a husband and husband, that one of those partner can go through with the agent and then they tag team. Which means for Maine, for instance, with my clients, I can't actually inspect a property at the same time as my clients. So we put a process in the, to our business, how are we going to work around these agents also need to qualify their buyers a hell of a lot harder because let's face it, it's completely inefficient to show every single bar.

Veronica Morgan: He might want to say a property, the property the amount of time it takes to actually show a couple through separately, you know. So we're seeing more video, we're seeing more virtual tours, we're seeing more even Asians doing walk streets where there are iPhones because they need to be able to qualify buyers better and the buyers need to be able to qualify whether or not they really want to see the property. So I think there's going to be some efficiencies. Am I coming to you though? The whole marketing of property. But the problem from the buyer's point of view is that they, somebody just starting in the market won't have the opportunity to go and research the market in the same way that they would have before. So for buyers that haven't actually got their head around what they might want to buy, they might still be able to buy, but really how educated are they going to be and that's probably going to be a hurdle that they won't bother trying to, to a leap until this is all through, you know, everyone done with,

Pete Wargent: Yeah, it's all confidence returns. I think that's generally what the Rossa shares is that if you get an external shock like this, then initially it's just going to impact transaction activity, not house prices, housing prices generally for when you get an economic shock. Now we can easily get that if they strike zone for six months because that's when you get into the fourth sell us in REI. But I would say for a lot of corporate, they come on time. There's not much confidence on the price side. A lot of sellers just might, they want to see is all too hard. And I believe CoreLogic has some leading indicators in terms of listings. A nice thing to be dropping already. So I guess in the Showtime we'll say a drop in transactions, but the wrong grade drags on and would probably fade into prices. I guess what everyone's really interested to know is what will I be a dramatic fall in prices.

Pete Wargent: And I guess historically it's like there's anybody for things that cause that that's if credit dries up, that's obviously uninitiated the reseller and puts in 30 GFC. And then is there a brand? Can have governments go rights on the front foot here to ensure that credit keeps flooding. So they've essentially created a funding facility for the banks. Rising borrowing costs can cause a crash, which we're not going to say [inaudible] last kind of wash through. Now the big one is just unemployment. If the, if you get a big spike in unemployment, that's when you get forced sellers and they have to take lower prices and things cascade. Laura. So, I guess if you're having to look for only one indicator, it's just let's say weapons, Swan employments over the next six months. Really granular on that because

Chris Bates: You know, this is, you know, with the market and unemployment levels at a national level, we could see it go from, you know, five to 10%, let's just say round numbers. But in some areas it could already have been it, I don't know, 10%. You know, different States have different unemployment rates, right? And if you find that, you know, some estates get hit harder than others and some regions get hit harder than others, that's where you're going to get a lot of huge amount of the population is unemployed, a huge amount of the population won't be able to afford their mortgage repayments. And so you get a massive shot to the man, but also an increase of supply with people trying to get out of their properties. You know, have you got any ideas of where that is potentially at higher risk than other areas? Like, you know, I'd imagine tourism areas like cans for example. You know, it could be, you know, get a real hit.

Pete Wargent: Yeah. Impulsively. Tourism exposed areas that I think Marie said, to be fair, there's a lot of retirees and people with second homes and quite often a second time is the first thing to go in a crisis. So yeah. And was to have a tourism exposure will be will struggle at least in the short term. I guess in the medium term, the lower Della will help them bounce back. Yeah.

Chris Bates: All right. If maybe we'll travel with it. We've got the confidence to go to airports and jump on planes and not get this illness, I guess.

Pete Wargent: Yeah. Yeah. Not for any care. I mean, nowadays the stats are evolving by the day. I made a touch board there. The figures for Australia look relatively promising at this stage, but you know, you look at what's happened in the U S and, and people still traveling around Florida, anything, well that's not, that makes you have, it is going to be fixed in a few weeks. That's going to drag on for months and months. So yeah. As you say, grind, it's a grind. The other issue I don't think I'll start is going to have to get harder and harder on tightening up the measures just to stop this spread. And there I guess there's certain that I can get it under control. Listen, if we can stop thinking about a sense of over re-opening of the economy.

Veronica Morgan: Well I've got two questions. First of all, on the demand side, in terms of property, we've, you know, some anecdotally I've been hearing from banks that there's record numbers of loan applications and not just for refinancing. So have you got any access to data on that? That sort of shows that underpinning all of these is actually, I would desire and a willingness for people to get into the property market or continue to be in the property market.

Pete Wargent: I'm all right. Sorry. When it comes to their, you know, real time information, the best source of information is guys like Chris the mortgage brokers because I get a first rate on this stuff. You know, when people pick up the phone and sites the broker, I'm thinking about making a move. So, look, I've heard mixed reports from brokers, so yeah, I, I don't know for sure. I, I imagine an awful of paper taking measures to refinance and potentially looking at payment holidays or you know, just maybe even just trying to get their rights down or whatever it might be. I don't know about the buyer demand and Chris would probably have a much better rate on that than I do.

Veronica Morgan: I was wondering actually whether there's actually any, a reliable source of data on applications,

Pete Wargent: A leading indicator index, which is based on inquiries and so on. So that's perfectly the Berry sprit. I guess one of the things is with ours figures is that massively seasonal. I'm sorry if you find through December and January they just drop off a cliff because you have to do, you have to have some kind of reliable mechanism for adjusting the various points in the year. But yeah, I guess that's one place I put out a weekly report with a leading indicator on it. But yeah, my stuff that I just pick up the phones of brokers and listen to all day telling me, especially those in Sydney and Melbourne because that's the bulk of the LZ market.

Chris Bates: Definitely. So pre approvals we had a lot of preapprovals and we still got a lot of people who are pre approved and a lot of and they were preapproved and I haven't been able to buy, it's just because of just how competitive has been out there. Right. And how fast the market's moving and have it, you know, it's just the difficulties of buying in the market when it's hot and it was hot til, you know, three weeks ago. You know, we a, we had a lot of people wanting to enter not enough properties. That's what's causing prices to rise. And if I go through my pre-approvals now, very few of them got the confidence to kind of push your head. And we're not really, there's still people thinking this is an opportunity. But I would say that most mortgage brokers definitely looking at their existing customers and getting new customers and trying to save them money on their mortgages.

Chris Bates: And so if they're busier than ever, I think AFG, which is one of the bigger broking groups, I'm not licensed through them, but they every month release a report for their thousands of brokers. And it's gonna be interesting to see what happens over the next three months with their brokers because they're, you know, it's a good litmus litmus test. And you'll see a real drop off in purchases and a massive spike in refinances. The other thing is banks are ridiculously busy because a lot of their processes are offshored and yeah, and their shop. Exactly. So I am Zed have I've got awful offshored their whole back office to India now, India shutdown for 21 days. You can't leave your house. So how are they going to get to work? And a lot of businesses aren't made you know, cause of it sort of security issues. You know, you don't really want all your offshore staff working at home with, you know, very sensitive information. So a lot of it's actually you've got to rock up and use our computers. So, you know, I think that's another problem that banks are having with applications is that they haven't actually got their back offices. Sorta. And

Veronica Morgan: Another question I have for you there, Pete, was, you talk about the Aussie dollar looks like it's going to go into its lowest, right? Emma what was any floated in the 80s. Right? But why is that if America is going to be so slammed and, and already is so slammed, I mean, you've seen, they've got more cases in any other country. There are less people than China and they had a headstart. They had warning. And it looks like one of the steepest curves in terms of diagnosis for the coronavirus. So and they're not, you know, people are still on holidays in Florida and everything that we've been talking about so they don't look like they'd taking it too seriously in terms of social distancing and those proactive measures to stop the, the spread of the virus. But they are chucking what tr $1 trillion is $3 trillion or whatever the stimulus package was into the economy. Why is the Australian dollar gonna suffer so much in that scenario? In this environment?

Pete Wargent: Yeah. Well we are often talking about Australia is the lucky country whether people are being sarcastic or otherwise, but in this, in the sense of say Australia has been very lucky in that it doesn't bother us, tended to be almost like a proxy for global growth because we're essentially a commodity exporting country. Now. It's a good question. Why, why would the U S dollar be strong at a time when their economy is floundering? It's essentially because the U S dollar is the global reserve currency. So in times of crisis people they tend to seek refuge in perceived safe Harbor. So the I started is still the King rather that continues forever. Nobody knows. But at the moment that's the case. So if we're going to a slow down, we've got this natural rebalancing mechanism where the LZ Delta has been down at what, 55 cents through this cycle. And of course a lot of our experts are denominated in us dollars.

Pete Wargent: So it's a real win for Australia. The value of a RN oral cow, LNG exports under other exports as well, often denominated in us dollars. So it's a real benefit in terms of revenue and that's why there's a lot of hope that China can have a very sharp recovery and we can benefit from that. But yeah, I mean, I, I, the interesting thing from a global point of view whether by design or by accident, it looks to me like China over the next five, 10 years emerges that the global economic powerhouse in America, you know, he's really struggling the amount of government debt that they're having to issue and the amounts of the ball, the Fed's balance sheet is exploding higher. But they, they've got real challenges in the U S now, so he has a, an awful lot going on in real time. That's very interested.

Chris Bates: Yeah. I mean, I think Trump's potentially not going to get reelected if he's been a bit late to the party. We should him some, but I don't know what to see there. I mean, in terms of being a buyer's agent, Pete two things, one what's happening in Brisbane per se, you know, and how's that market performing, I guess prior to this? And then also, I guess now I'm, what sort of strategies are you using to help people that are still came to buy? And how has, has things changed?

Pete Wargent: Yeah, well I guess, I mean, some things change for us, but I guess in a sense we, we only follow one strategy or of times anyway, but suddenly the number of Israeli dropped off. It was running hot the beginning of the year. I suppose this is the limitations of forecasting. If you think back on, they'd say January, February paperwork, predicting big things for the market. The reserve bank was forecasting unemployment heading to 4% and so on, and then suddenly you get this black Swan event and everything changes. So I guess we're looking at it as you said, a lot of people are more cautious now and they, they don't want to, they certainly don't want to overpay, but I guess you know, they can try me and they may say as well, these opportunities only come round every so often.

Pete Wargent: It's a buy without competition. So we'll just be focusing on the blue chip, the highest quality assets we can find and just going in with low offers at a time when there's no competition. But yeah, for sure the number of people at open homes really dropped off in the past couple of weeks. So you can still have open homes up there. We're not going to say, yeah, this is changing as we speak in real time. So until a week ago. Yes. But now I think the government advice is shifting towards, Whoa, you should have rarely unless you've got a very good reason, you shouldn't be. Sort of leaving the house so you can still have one to one inspections. That was the most recent advice, but a, so opens won't happen now. And certainly auctions won't except maybe digitally. But yeah, man, this is a rolling advice.

Pete Wargent: Queensland says to be a little bit behind new South Wales. I think possibly it's simply because we haven't had that many cases in Queensland accepts for one cluster at Noosa. So long story, there was one restaurant that had a big big outbreak bits and I guess we're probably just a couple of weeks behind and we'll probably move in the same direction. So become very difficult to transact potentially.

Veronica Morgan: So let's say what happens every princess event, you know, like we had a bunch of people infected people getting off a cruise ship, ships down there. If you like a head start on a, on diagnoses,

Chris Bates: Aren't you pay in Brisbane infrastructure projects in Brisbane? Is this a new pole cruise terminal?

Pete Wargent: It should have been finished actually six months ago. It looks, the deployment opening was lighter this year, but I mean the cruise industry is one of those. There's going to be tremendously hard hate. So how quickly that bounces back, who knows.

Chris Bates: How the baby boom is going to go on holidays. It's not just the

Veronica Morgan: Baby boomers, it's the, it's your demographic. Chris. They've all been taking their kids on them because, you know, they get free babysitting and they get to Swan around by some flooding pool carrying a cocktail all day long. Well, the kids,

Chris Bates: No, they don't have. But anyway, did that argument, I get a lot of cogs. So you know, they're thinking about buying an investment property. Let's say they live in Sydney or Melbourne or or they've already bought any master property in Brisbane because affordability et cetera. And you know, I think a lot of people go up there and they take their Sydney mentality and I think it's, I'd shaved and I go and boss stuff up there. What's the quality assets in brisbane and from an investment point of view and what don't you buy it there?

Pete Wargent: Lots of, I even touched on this in episode 24 or whichever one it was, the, the scarce commodity in Brisbane properties, just wall located landing good school zones. I think if you go towards a high rise apartments or many do intensive, they stopped as miles away from this. They'd say, yeah, I'll just on the very third largest property types just haven't performed. And I guess due to the outfit, bourbon and race NDAs, there's been no growth rarely for 10 or 12 years. The type of stuff that does well pauses in blue chip, the new foams balloon bores a hole for him. Those kind of areas. 10 if your budget doesn't stretch to those, I guess the next, the next Teo is really just being a five K suburbs because it's just simple geometry. There's, there's this limit to how much land they can have a battery within five K's of a, a CBD.

Pete Wargent: So if you can get into good schools, islands you know, obviously fraud free blocks in Brisbane you want to be on daily close to some form of transport such as charring outside. 90% of it is common sense. You know, they kind of areas where families bring the main buying demographic. One city wants to live for mom to buy, cause that's, that's how prices go up. I think him growing zine has a long and checkered history of paper making bad investment decisions. Usually, you know, hold it out of comments or it's like they're stuck, which might say to more material capitals. They say like London, Oh Sydney. But everywhere they embrace Bernay sees the role like active blocks of Latin. That's where they grow these,

Chris Bates: Yeah. By 20 patients, the city in Brisbane I think, well, you know, 20 km to see Sydney say Veda is, you know, it's still pretty close psych or it's still pretty close in Melbourne. Like it's a, you know, this just isn't that pressure cooker effect in Brisbane. So if you're going to buy something, it's scarce. You've got to get close to the CBD, you know, in that kind of five K ring. Ideally. and I just think that's a big mistake people do is, you know, like, Oh, I bought a house. It's only 12 cases in the city, in wall 12

Pete Wargent: Guys is still a long way. I think. You know, it's not like in Sydney it's still pretty close to the city. No you're bang on because literally when he got past throw it to the Southwest area, there was heaps and heaps of land that could be released or foam develops or AC. Really it's a sort of 10 K radius is about as far as you would want to go. So I guess I'll look Slater, the South West Cape parrots or the NOLs, that kind of radius. There are some suburbs on the North side a bit further out that you might consider. But yeah, the demand is heavily focused on that in a tank guy and they close too and you can get the better really for the budget.

Veronica Morgan: So interestingly enough, I mean obviously in those areas are very owner occupier driven, right? So not investor driven. And when you get further out, you, you've got lots of investors that have been buying these properties often, you know, from Sydney or Melbourne and now you've got a situation where you can't get into Queensland unless you have from there. So the borders are shut. So you know, you've got the site unseen buyer, which has been a bit of an issue in certain areas of Brisbane as certainly Southeast Queensland as well with a lot of Southern investors buying sight unseen. And now I guess, you know, staying silent seems a horrific way to buy property full stop. But particularly in these cases. So are you still seeing that? Of course any price growth that it comes in Isaiah is usually because you've got a flood of investors from in state. So there's nothing intrinsic about those areas that mean they're going to experience any good growth. It, you seeing that is dried up at the mineral or is it not sort of on your radar, that type of activity.

Pete Wargent: Okay. Well I guess pulling really the three of us who are on the same page in that regard. So I'll do any all pricing that spice I've never had. But obviously what happens is from time to time, people find me up in silo. I'm thinking about going with the property growth and that, you know, almost before they've told me, you know, I can, I can second guess, brothers' story's going to vary. It's going to be, well we found this Brock, I'm making sub divided and you can have a small house and you got good tax benefits and it goes, I, the last thing that I disclose is the location. And it's nearly always as Chris said, you know, it's miles out, but 40 guys from the city in areas where the land might be, you know, he's almost worthless, you know, that, that kind of property.

Pete Wargent: And of course the laundries were really does the heavy lifting for you in real estate and if, if the land value is under $100,000, you know, even if you have a boom in land prices, it's just not going to move the dial. So, but as Chris said, I probably look at it through a Sydney or Melbourne lens. And I think about the price doesn't sound too bad, but you just end up with low quality stock models from anyway and people buy it and then 10 or 15 years licensed, I realize it's not worth what I paid and the uncle continues.

Chris Bates: It's really hard. I mean, some of the big runs off say, and he's Ipswich, I mean lots of place around that. Obviously the whole Logan area has been pushed with these duplexes. And you know, Hassan land packages and Redback Plains. Is that really not a popular one that I'll say spruiked all the time. And you know, when you look at the map, as soon as you start Brisbane on a satellite, it hits you. You know, I send it to clients and say, look at all that land. And they will realize pretty quickly that it's not scares. I think another thing I've seen interesting is a lot of buyer's agents have gone down this commercial. It's high yield. You know, I'm sure we've all seen sort of you know, property experts or whatever you want to call it. Coaching, you know, commercial property and you know, you've got a sale. The risks of a commercial, that's the one, the biggest assets that will be smashed in this kind of recession. Right. You know, if you can't get it or your tenant negotiates out it's hard to kind of, you know, put your rents up if ever, if there's lots of other places for rent in a town. And so I think a lot of those people who have gone down the commercial route, because there's been a lot of property people saying that I'm going to be feeling a lot of pine.

Pete Wargent: Yeah. first time experience if clients signed to me will never board base commercial or corporate and logan they'll bring Larry or whoever right before the financial crisis and I wouldn't get that money back tonight. And that's 15 years. So a commercial property doesn't believe in the, you know, there's, there's less demand for it. It's very niche. There's a lot of risks in, you know, just through investing in general. And I think dr Veronica said they sit out previous episode. Is that how you usually represents a race? Gives some soul. They see, you might not know otherwise skis, but that's, that's what it is. You know, you don't get it. There's no free lunches in investing. If they're near these 10 or 15%, then you know you can get that on residential property in Bolton. But I usually mains houses and multiple occupants saying or you know, some kind of commercial pop say whatever it is it is. There's not a free lunch

Chris Bates: In the North and being on a pretty Che way. You're from pate.

Pete Wargent: Yeah, that's fine. You can, you can get first thing cause then I think we said they the on the other episode, but you know that 15% probably means you have six tenants and they changing worldly size probably 10% night and then you've got all the damage and the former. That is not for lens when people think about it. How you,

Veronica Morgan: When we were talking about earlier that second homes and certainly when you've got an economic shock such as the JFC for instance the second home was the first one to go. And so I guess what leads up to owning a second home is a period of prosperity where you feel like, Oh look, you know, I'm going to reward myself now. I'm going to buy myself a weekender and and I can afford it because life's good. And, and I remember after the GFC, you know, up in Palm beach or the Northern beaches, Avalon, that sort of area in Sydney, every second house pretty much had a for sale sign on it. And those, a lot of those signs stayed there for years. And it was many, many years before you actually started seeing a normal amount of for-sale signs rather than these sort of second house syndrome. And I guess even the fact that you sort of, you know, talking about, you know, people have their, guard has dropped to him for a period of time. They remember, they remember that Reece, they remember the pain of that. They remember the economic costs of that. And then, you know, life goes on. I was taught to buy a holiday home again, so it might be that will be interesting to see what that sector of the market does following these coronavirus crosses.

Pete Wargent: Yeah, sorry. I see not Veronica used to live in Sydney for a dozen years though, Simon. I remember exactly when you're deciding when we stay holiday down in the South, coast off today's wakeboard and you drive down towards growing, growing and beyond. And it, as you said, it was literally every second palace was beside. But the tribal is in that kind of environment. There are very few bodies around in this stuff and a normalized eventually, but it took years and yeah, that's, that's why when it comes to property investing, you really need to stick to the employment hubs. You know, that's, that's my paperwork. Always need to live close to the schools close to the Gelb's. If he got into holiday locations they do. But then the downsides can be, so just a lot nicer in the U S you know, in Florida more in places like that.

Chris Bates: Yeah. It's interesting as well though that people who have you know, let's say they've got, you know, people buying a holiday home might be, say living in the more premium suburbs if, say the capital city, they've got other assets that they can lean on if things get tough. Right. and so if they, you know, worry, they've got a small share portfolio or other assets, so if they do lose their job or you know, they haven't got any income in the home, maybe they've got really good growth on their property. They've got this kind of payment holiday, they've got 2% interest rates and these things get really tough. That's when they go and stop fire selling all their other assets and they hold onto their home. I think a lot of people inside the middle and outer rings cause they're purchased in the last 10 to 20 years or even in the last five years.

Chris Bates: All of them, I've got very high debt and very little other assets. And so, you know, when, when, if things do get bad, a lot of them and they haven't got a job and they can't afford their mortgage and they can't even afford to live then that's when you're going to start to see, I think a lot of them haven't got any other option but to sell their home and then you'll start seeing supply hit. So do you see there's going to be these kinds of haves and have nots sort of scenario kind of playing out, which generally happens in every top of recession?

Pete Wargent: Yeah. Plus the, in Africa road there's still, Denmark is a, probably in some of the lower sociodemographic areas, cause if it's the right Tyrell and hospitality and silo Ana, I think one of the things we've seen in Britain, three recessions in Australia too, through the, is that for most people, the family home. Yeah. They're the preferred. Part of these are ways for Barron's if he, if he can hold onto your place of residence. I usually, the last thing to go for people and if I can afford to holiday. And now a lot of people these days can borrow it. 33%. So it might be three and a half. Sorry, I given the banks were low for a mortgage payment holidays, I think there be that many for sellers in the coming six months. Now the, I guess the, the problem will be if it drags on for longer, then that's when you might say the forced selling because if, if, if unemployment rises every six months and then I was into the double DJs, well that's, that's a challenge. But most people won't look to sell that home in a downturn. Thus usually children, the property owning countries like Britain and Australia.

Chris Bates: Oh, I, you know, yes, you can get the mortgage payment holiday, which you know, let's say the, you know, but if you've lost your job yeah, she might be getting this $1,500 a fortnight from the government now, but that's only, that's only 700 bucks a week to live off. And you know, if you've got other debts or car leases and you know, just living costs quite expensive here, you could easily see a situation where people become a liquid and have to sell. So, you know, I guess it's, it's whether the you know, in six months time if they can't get back into employment, the, the payment holidays goes, the government benefit goes. I guess that's where you probably gonna potentially see for sellers.

Pete Wargent: Yeah, I think there's very little appetite from certainly from policy makers and I think banks as well to foreclose on people. You know, people really don't want to go down that path is highly inefficient for banks. Obviously borrowers down wants to do it. So given the unique circumstances that we face, I don't think many people will be forced into that situation. But some people might ask, they opt to sell. I think banks would rather give people the opportunity just to take a full payment holiday. And we might even say that over the coming weeks that even interest in is in capitalized in some cases because you find that banks really don't want to foreclose on people in their current type of environment because we're all diabetes selling into anyway.

Veronica Morgan: Well that's exactly right. It's the domino effect then isn't it? I mean that's just going to, the banks will booth a bunch of assets and they'll be stuck with it. The the, the responsibility of actually trying to offload them to recoup money. That's not actually going to be good environment for any bowl, this situation for anybody is it? No, so it's not just, are they just trying to save the bike and have individual homeowners? This is actually that you don't want to be stuck with an absolute avalanche of stopped and has to be sold at target prices. That's not going to work

Pete Wargent: I think. I think people have understood that. We'll tell you about this. A couple of units. The guy with the interest on the cliff. And I had, you know avalanche of people emailing me about the report that I wrote saying you have this is just or some problem call stays. The lines are where he said that'll be thorough dye bust this, I will not, I run because probably incentive as a bank fraud to actually put proper and safe and I'm so stressed it just doesn't serve any purpose. And as it transpired, most people have with our phones off continued. So hopefully this time around if if the government and the reserve bank compared that bridge to the other side, we're looking back on it as a break. But at the moment things are moving pretty quickly.

Chris Bates: It's pretty nice seeing that around the interests Island cause you're right, like a lot of, there was a bit of talk around that, but then you had the Royal commission happening with APRA and ASIC and no one understood around responsible lending. But then that all just got kind of thrown out the window and it was back to business with the banks and interest only were getting extended. And then people could able easily able to refinance again because it got relaxed and then all the rights on interest only lines of, you know, you can get to three years investor interest only right now for 2.69% so you know, for investors it's 2.7% for the next three years. Interest Island side you know, that's allowed a lot of investors just to refinance and protect themselves.

Chris Bates: Every week we hear incredible stories of the dumb things. Property buyers do dumb things. It ended up costing a whole lot of money and or a whole lot of stress mistakes that can be avoided. Please speak. Can you give us an example of

Pete Wargent: We can all learn what not to do from these stories, right. One of the things you see in Brisbin far too often is paper having a legal tenancy. So I buy properties that might be a family appropriate, but then, and you see these all the time, properties that on legal height downstairs and I put in maybe two or three different tenants, they might not be fire compliant and yeah, for sure. In the short term, there's a benefit to landlords doing that in terms of increasing the rental income. But if you're, if you're not compliant and the risks that you're taking on there, if there's a fire or some kind of other hazard, if we're saying that if they said race in yeas with people trying to bump up the yields and it's just not worth it.

Veronica Morgan: Oh D yet another reason that buying property with yield in mind only is a crazy idea.

Chris Bates: I think it was M and feminine or whatever. I think you said he's not, and he's the one, he's a CEO of UKO. I don't know if he's still doing that, but he had that exact same store. I think he bought a house thinking that he could rent out downstairs and found out he couldn't rent it. Yeah cause it wasn't legal, I think from memory. Yeah. And then you get any rent upstairs and then these yield went from an eye to full percent. And that's what he was buying it on. And so now, she's got a house that he was in Coffs Harbor or something.

Pete Wargent: Yeah. That sort of thing. In same with that causes a multiple occupancy camera at one way street. So a bit of a dead end because at the end, you know, when we come to our flight, that property at the end of your investment, you can only rarely sell that type of property to another investor. It's just a very thin market. So yes, the yields can bill, right. But the capital growth is seriously questionable and there's a lot of headaches that go with it as well.

Chris Bates: I get, that's a really good point. Just rent granny flats actually because that's what people would do is right. They get these houses and it's, you know, they build a granny flat out the back and you know, they're renting out, got double income, then their life changes three years later. And the guy actually, I know w we need that money. We have to sell that property and then they can only sell it to, you know, other investors or families that want to need that extra income stream, which you know, the family that wants the backyard for the kids doesn't want the granny flats. You've completely ruined yourself out of probably the number one demographic that you want to want your home. You know, for that short term potential yield that's arguably not even that much.

Pete Wargent: Exactly. Right.

Veronica Morgan: Well on that note, thank you so much for your time.

Pete Wargent: Pleasure guys. Yeah, I'm house bombed at the moment in nurses. Sorry. Thankfully we have a poll and that the kids are healthy so far, but it's this drags on for a few months. They could be challenging.

Chris Bates: Yeah. And styles go forth. Might get put in, dig a hole in your backyard and do some practice. You're putting well thanks for watching. Thanks guys. Coach. Thanks Pete.

Veronica Morgan: We want to make you a bit of elephant rider. So this weeks elephant rider training is,

Chris Bates: So, you know, one of the things that the banks have done to support the property market probably in partnership with the government to be honest, is allow mortgage holders to put payment holidays now, you know, up potentially up to six months, a lot of them as well. And I just got an email, you know, half an hour ago while I was on this podcast actually with a client getting a payment holiday approved at st Macquarie. But some banks are doing a lot of due diligence around it, making sure you have to prove that you've been affected. But some are just saying if you need it, you can have it now personally.

Chris Bates: It's, it's not a bad thing to do if you can get it. Because what you'll do is you'll say potentially six months of mortgage repayments coming out of your cashflow. Now, if that allows you to still survive, if you have lost your job and you do need it then, and it stops you from having to sell your assets, then it's a huge win. Because when you do get another job, you're going to be fine. If you still have a job when you don't need it, but you get it that's not a reason to go and spend that money. That's not free money. You'll be accruing additional, you know, debt every month that you don't pay that in. Let's say it's $5,000 a month is your repayment. In six months time you've got 30 grand more debt. So if your mortgage was $1 million, now your mortgage is 1,000,030, but the good about these and holidays is you can then pay that million 30 off over the next 28 years or whatever you've got left in your mortgage.

Chris Bates: So or you know what they'll do is just extend that potentially another six months is what they're talking about as well. So the key thing is it's not money that you're getting for free. You're still going to acuity that debt, but you're also going to save that cashflow. So all things being equal, in that scenario, you should have 30 grand more buffer in six months time and 30 grand more debt. So I personally think that's a massive win. The problem you'll have is when you spend that money thinking it's free money. So if you can get a payment holiday and even if you don't hate it personally, I would go and get it. It doesn't affect your credit writing. But some banks are asking about it if you're looking to borrow more money. So if for example, you're thinking about buying an investment property, just be a little bit careful here because you could shoot yourself in the foot because you just want to go to holiday when your home and now you're looking to go buy an investment property and the bank might say, Hey, I want to say, why did you get that payment holiday? So you just got to be careful about that risk which people haven't thought through.

Veronica Morgan: Please join us for our next episode when I'm interviewing Chris. Now why am I interviewing Chris? Because I am curious to understand what's going on with some of my clients. Clients who have traditionally dealt directly with banks are finding some unexpected hurdles in their finance approval, and I want to understand why that is happening and really what are the benefits of using a broker rather than dealing directly with a bank. There's some great insights in this and a lot of things that I didn't know, so please tune in.

Chris Bates: Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn, Brad's Twitter,

Veronica Morgan: Or you can connect with us on the elephant in the room.com today, you, the links are all there for you.

Chris Bates: Please connect and send us a message. We'd love to hear from you.

Veronica Morgan: Until next week. Don't be a Dumbo now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent who will tailor and document their advice to your personal circumstances with a statement of advice.