Finding value in property during an economic downturn

Many of us have lived through economic uncertainty in our lifetime. That uncertainty comes in many levels for people at different stages of their lives. It could be when you were young and left home for the first time, trying to manage your money, paying rent, buying food, and enjoying the fun things in life. It might be the struggle to save for a deposit to purchase your first home or an investment property. It may not cause economic uncertainty, but it could be financially challenging saving while trying to continue to balance daily living expenses. 

Depending on your age you could have lived through and survived many financial crises and now they are just distant memories. Can you remember how you were affected by the Global Financial Crisis? You may not have been old enough to remember it. Then we had the impact of 9/11 on businesses. What about the Y2K bug when all the computers across the world were supposedly going to cease to work? We had the 1990 recession in Australia with the now-famous quote by Paul Keating, then the Treasurer of Australia:

“The first thing to say is, the accounts do show that Australia is in a recession. The most important thing about that is that this is a recession that Australia had to have” – Treasurer Paul Keating, November 1990

Going back to the early 20th century there was the Spanish Flu in 1918. Then the Great Depression in 1929, and the list goes on. 

However, after these hard times, came hope, then growth, and then we prospered.  We forgot about our pain. We survived and we moved forward. Now it is 2020, we are again in fight mode and facing an enemy we cannot see. Through this time there will be many that face economic hardship. There will be people that will struggle. There will be unemployment, loss and adversity. The effects will be felt by people in our communities, our neighbours, friends, business colleagues, or our family. 

On the other hand, there are many who will weather this period of uncertainty with minimum impact. They are employed in industries that haven’t slowed down through this pandemic, they continue to earn an income and life goes on. 

This is where confidence comes into play. If people have confidence, are in a financially sound position and have the foresight to purchase property in a slow market, over time they will find the current economic climate presents a great opportunity for investing in property. There are many great opportunities currently out there in the market, and these opportunities are better described as VALUE.

This is what VALUE might look like. 

• Reduced pricing of properties
  • This could be a discount on the purchase price and might be 5-10% 
• Cash Incentive
  • A further incentive to buy at this time. This could be offset against the purchase price or a rebate on a settlement. 
• Rental guarantee if you are purchasing an investment property
  • This should be at market rent or close to market rent. If you are offered a rental guarantee well above market yields in the area you are looking to invest in, then this could be a red flag to walk away. 
• Job Guarantee
  • If you lose your job over the duration of the COVID-19 lockdown, you might be able to have a clause in your contract that you can walk away from the purchase and receive a full deposit refund before settlement
• Stamp duty relief package from governments or developers
• Turnkey property
  • This means that there is nothing more to spend on the property. It is ready to move in – make sure it includes free blinds. 
• Furniture package for properties
  • This may not be a good option in the current climate due to the downturn with national and international travel or limited people moving. This type of property might have higher vacancy periods.

The above may not be available for all properties on the market. But the time has come to negotiate and see what added VALUE you may be able to receive. Remember, completing your due diligence first is a must and don’t purchase on price alone. 

Lastly, a quote from Warren Buffet to ponder: “Price is what you pay. Value is what you get”.