What a second sharemarket crash means for your investment property
Posted on Tuesday, August 16 2011 at 4:54 PM
Just when we thought a market recovery was around the corner, the Australian sharemarket has taken another tumble. Thanks to the US's credit rating being downgraded from AAA to AA+, the Sydney Morning Herald newspaper reports the benchmark S&P/ASX200 index fell down 34.4 points, or 0.8 per cent at 4071 by Monday lunchtime, while the broader All Ordinaries Index fell 26.1 points or 0.6 per cent to 4143.6. Federal Treasurer Wayne Swan has called for calm, but Australian Property Investor magazine's property experts believe there's actually every reason for investors to feel optimistic right now.
In fact, founder and director of Your Empire, Chris Gray, says sharemarket jitters are likely to push more people back into the property market, rather than investing in shares, especially as lower interest rates are looking increasingly likely.
"People still rent properties so if anything it's good, because your negative cash flow isn't as much (if interest rates are lowered), so effectively you're more positive cash flow," Gray says.
"In good times you're making a lot of capital growth. In bad times, when interest rates drop, at least you're more positive cash flow, so you're not in a 'for sale' position.
"For those people who are cashed up, it's also a good opportunity to buy because there's no competition and you've got more choice. You can pick a property that ticks all the boxes and you can get it for a fair price."
Gavin Hegney of Hegney Property Group adds a potential drop in interest rates (some media reports are predicting as much as 50 basis points in September) means people will start heading to the shops more too.
"One person's spending is another person's income," he says.
"That will avert what otherwise would have been the likelihood of increased unemployment."
A double-dip recession shouldn't come as a surprise either, he says.
"It was widely talked about and widely factored in, so people shouldn't be shocked. Unless it causes increased unemployment, rising interest rates and decreased wages, property investors shouldn't be concerned."
The Australian dollar has also fallen below US$1.04 but that's not necessarily a bad thing, according to Hegney.
"The winner here is the manufacturing sector, which employs considerably more people than mining, so it's a real win for those who are exporting and that's the vast majority of the economy in Australia," he says.
However, Gray warns those who invest in high-end properties could still be in for a tough time.
"For those with million dollar plus properties, it could be tough, because people will be worried about their jobs, so they won't make large purchases," he says.
"If you've already got property, I would suggest holding tight and riding the storm."
Monique Sasson Wakelin of Wakelin Property Advisory adds the automatic reaction for prospective buyers is to do nothing.
"In coming weeks it's likely vendors will find it tough, especially those who are unwilling to meet the market," she says.
"But once the correction has eventuated and stock prices find a new floor, the fear will begin to dissipate and decision making will become more measured. At this point - possibly in a matter of weeks or a few months - investors will look for safe havens. For some this will be cash; but others will choose property due to its tangible and familiar nature, and typically, it doesn't behave in a volatile manner."