If you selectively read the popular press, you could be forgiven for thinking that the worst of the Covid-19 pandemic is behind us.  Talk of success in isolating the virus in this country, relaxing restrictions and stories of business succeeding despite restrictions and some outstanding property sale results.  All good – but I am fearful that this is an Indian Summer.

For those that don’t know, an Indian Summer is a period of unseasonably warm, dry weather that sometimes occurs in autumn before winter begins in North America.  That is – a false horizon.

For many people in our society the last three months have been quite positive from a financial point of view.  The list is quite extensive:

  • The unemployed – the JobSeeker allowance is double the previous unemployment benefit;
  • Welfare Recipients – two additional payments of $750;
  • Low Income Earners – JobKeeper has increased the income of many to $750 per week and protected the income of millions more; and
  • Secure Employees – working from home and other restrictions have freed commuting time and lowered spending on travel, meals and other discretionary spending.

Many of those that are financially worse off have been able to defer the worst of the pain by reducing their rent payments, taking advantage of free child care, rescheduling mortgage payments and accessing up to $20,000 in super early.

I don’t for a moment doubt that some people are struggling – I know people who don’t qualify for the various government programs or have had to make hard decisions to survive – however, I suspect that they are a minority at the moment.

Unprecedented government stimulus seems to have caused an outbreak of optimism.  My point is that for many, life is pretty good from a financial perspective right now.

However, if you look a little further into the future the storm clouds are clearly gathering.  As was canvassed in my last newsletter, we can look through the uncertainty to discern some harsh realities about our economic future.  The outlook includes higher government debt and deficits, tax increases, increased long term unemployment, lowered demand for retail and office property, lowered consumer confidence and the effects of large scale wealth destruction.  Chris Ilsley described these conclusions as a statement of the bleeding obvious. 

I fear that when the stimulus ends – scheduled for September – the party will be over.  At that point the reality of a pause to immigration, the loss of our national income from overseas students, the loss of net income from tourists (offset in part by increased domestic tourism?), the lag times in restarting industries like construction and airlines, those businesses that don’t reopen and much more will also become clear.  I foresee a nasty economic hangover.

For property owners, that means (assuming my outlook is right), despite property prices that have on average fallen already, property investors that are overweight should consider disposing of property during this Indian Summer period.  For buyers, you need to make sure your due diligence is thorough, your purchase price is right and your plans include some contingency for possible future property price decreases.  The Treasurer, in his recent speech, referred to a 40% fall in property transaction volumes.  I wonder how long those 40% of vendors can afford to or are prepared to wait it out?

As always, I remain optimistic about Australia’s long term future.  Despite this, in my opinion, the next two to three years will be challenging for the economy and property prices.  I believe that there are harder times ahead and equally great opportunities will arise for those who have the knowledge and are in a position to take advantage of them.

Until next time.

Lewis O’Brien

Melbourne’s property lawyer of choice.