Unprecedented and indebted: learning to swim in a brave new world

It is incredible how the world has changed so rapidly in a matter of mere months; our health, our economy, our investment outlook, even our overall perspective in general. Do we consider this a 'once in one hundred year’ crisis? Perhaps, it is safe to say that none of us have seen such a situation in our lifetime.

A vastly different landscape

We commenced the year expecting significant growth in our investments. Historically low interest rates, the removal of negative gearing off the table, the easing of APRA and ASIC restrictions, high auction clearance rates all factors culminating to paint a promising investment picture for at least the short to mid-term.  

From a Governmental standpoint, well-managed unemployment rates and a projected budget surplus pointed towards a relatively healthy economy in 2020.  Unfortunately, then came COVID-19, completely changing the landscape, perhaps forever. 

A generous safety net

The ‘lucky country’, as we call ourselves, entered the pandemic with a strong Government Balance Sheet. Pro-active Government actions provided many measures including:

  • JobKeeper and JobSeeker, 
  • wages subsidies for apprentices and trainees, 
  • $750 social security payment, 
  • up to 150K instant asset write off, 
  • up to $250K Corona Virus loan, 
  • safe-guarding insolvency and bankruptcy measurements, 
  • lowering the eligibility criteria of social security, 
  • 10K superannuation drawdowns among others. 

State Governments provided additional assistance through:

  • payroll tax relief, 
  • land tax relief,
  • the 10K Government Grant (in NSW). 

Banks offered loan moratoriums. Landlords are in tenancy moratoriums and industry-specific incentives for childcare and others were put in motion. 

We all applaud the quantum, the value, the efficiency and the leadership through which all of the above and more were implemented. 

But where to from here?

Now we are left asking, where to from here? Are these all really ‘free’ incentives, or do we need to pay them back, and if so, how? What will be the economic, financial and investment ramifications when the world does reopen?

No such thing as a ‘free lunch’

There are contra views. Perhaps there is no such thing as a ‘free lunch’. A reasonable man considers that in one way or another, we all must contribute to re-paying the above.

So, the question is how? And then the more pertinent question is how this pay-back will impact investors?

Payback time

Perhaps, the Government will need to continue the infrastructure and project investments as well as spending to not only re-commence the economy but to amplify activity.

This will all need to be paid for, by dare I say it,  dreaded higher taxes.  This may eventuate in several forms; 

  • higher company taxes,
  • the removal of the franking account 
  • negative gearing again be subject to debate, 
  • the CGT on investment properties to be increased,
  • the sale of PPR's be subject to CGT,
  • superannuation taxed at a higher rate,
  • an increase in income tax?

Unprecedented and indebted

Of-course, we just do not know. The world is in such a state of flux right now that perhaps all immediate measures should be taken in containment strategies. 

However, let us make no mistake, ultimately, all incentives will need to be repaid by us in one way or another.

Risk mitigation more important than ever

So, what can we do as investors looking to swim in this brave new world? I suggest it is time for us to take a deep soul-search and re-visit our goals and objectives in light of this new landscape.

Risk mitigation has always been a good investment strategy. Liquidity has never been so essential. A selective investment strategy has never been so imperative. Diversification should perhaps be re-considered. Yield and manufacturing further yields has become crucial. Well thought out and well-researched action is fundamental. And as a final strategy, if the world is too uncertain and too unpredictable, perhaps a short-term ‘laissez-faire’ approach is not such a bad strategy for now. 

For serious investors, no doubt experiencing ‘opportunity cost’ is a difficult pill to swallow, however, we will do well to remember that property investment is a long journey and in a world of uncertainty, perhaps measured steps are what is required.

The opportunity of a lifetime

On the other hand, perhaps some of the opportunities expected to present in the imminent future will arguably be genuine ‘once in a lifetime opportunities. 

For the right investor with selective investment, in consideration of personal circumstances and long-term individual goals and objectives, this may be the time to acquire quality investments at enormous discounts. 

So where to then? Perhaps, it is steady as she goes. Maybe we consider all mitigating matters while considering further investments in a selective manner with complete knowledge. Otherwise, it might be best to sit tight and wait for the right opportunity. 

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