Dear Reader,
Sometimes the absurdity of the financial world has you wiping the tears from your eyes with one hand…and holding your stomach with laughter with the other!
News just in from Shenzhen in China says luxury apartments are selling out in minutes.
Buyers are paying out huge commissions to get in on the action.
What gives?
The Australian Financial Review:
‘Property agents say investors are taking advantage of cheap loans and other coronavirus relief measures aimed at keeping struggling companies afloat.
‘Instead of using the relief to pay workers, they are obtaining business loans using properties as collateral to buy another apartment.’
Pity the poor labourer over there.
Not only is the relief money not arriving…it’s pushing affordability away from him too!
Earlier in the week we looked at how the current tidal wave of stimulus will find its way into property eventually.
There’s some early evidence…a day or two later!
Oh, and what’s this?
The Aussie federal government doesn’t want to let this crisis go to waste either…
Aussie Property Expert’s Bold Prediction for 2026. Discover More.
Tax cuts end up in one place in the end
Word from the treasurer is that the corporate tax rate could be cut from its current 30% threshold.
We’re told this will increase productivity and business investment.
Maybe.
More likely the newly free cash flow will be absorbed in the property market.
Why do you and I care?
Already we can see the inklings of where the next property boom will come from.
To suggest such a thing now might look like lunacy.
2020 is a write-off. We know that.
But property cycles move in long swings.
The setup is already forming for the big move from about mid-2021–26.
One point we have noted is the potential for the land market to absorb the cash left over from lower taxes.
The second is the collapse in home construction happening now.
The Housing Industry Association said yesterday that new home sales are down over 20% in March.
We already have detached home building at a six-year low.
Sourcing building materials is still a problem for the moment too.
We have no way of knowing when the construction industry can find its feet again.
But we can make a very reasonable assumption it’s going to take years to catch up from the twin king hits of the Banking Royal Commission and COVID-19.
There are two factors behind the next property boom.
A likely third will be huge government stimulus to the first home buyer market once the economy returns to something resembling ‘normal’.
We’ll have to wait and see on that prediction.
There are three things to keep an eye on over the medium term.
What of the short term?
A teetering scaffold of ‘confidence’
That pulls my eyes to the stock market.
I can’t help but feel a lot hinges on a rickety base of ‘confidence’ right at this moment.
We had the big panic from 20 Feb to 23 March.
The ASX has since bounced just under 20%.
This rise came in the face of huge unemployment, the US oil price going negative and a relentless stream of bad news.
My big concern today is if the market breaks under the 23 March low of 4,372.
Even back under 5,000 might spook a lot of people.
Here’s why it’s on my mind…
Investment bank Goldman Sachs suggests there could be a share market dump coming.
The analysts at Goldman reason that most of the workers hit with job losses are young.
Their funds are much more likely to be invested in shares because their lifecycle puts them into ‘growth’ portfolios: read stocks.
Smaller super funds may not even have the cash levels to cope with this.
Read: Forced selling as super funds start processing the special redemption requests now allowed.
These are beginning now.
Perhaps it’s no more than minor selling pressure that eventuates.
But it’s the second order affect that concerns me more.
The majority of super fund assets belong to the old.
And they dare not risk another big drawdown.
Time is no longer on their side for any recovery, whenever it comes. They need income and to protect capital now.
That means a second bout of heavy selling on the ASX could see jittery over 65s — currently sitting on the sidelines wondering what to do — pull their money out.
The next month on the ASX is going to be very interesting indeed.
How to make sense of the current environment?
Deflation first. Inflation later.
Bill Bonner actually says it better. First we go Tokyo, then Buenos Aires.
Best wishes,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.
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