oc | Monday 25th May

2nd half up market – here’s how

Executive Summary: Improve our economic situation immediately at NO ADDITIONAL COST to governments through a market improvement.

3 key components of actionable , as opposed to underlying where friction and barriers lie:

  1. Belief,
  2. Trust and
  3. Money

3 property market lubricants – the WD-40 if you like –  that will reduce friction/barriers thereby encouraging underlying demand to move to actionable demand:

  1. Asia,
  2. Auctions and
  3. Major Super Funds and Risk Insurance

Below are profitable, low risk, protecting of asset and income base suggestions.

They are already proven to work and we have moved some of our ideological goalposts in an attempt to help our community bounce back.

It’s 6pm on Anzac day and in the spirit of having a go, we are making what we think are positive suggestions so – here goes.

The market could go up in the second half of the year.

We Victorians are a resilient bunch after all and if the pundits think it will go down, then history shows the market will probably go up.

Is going up a good thing? Although our main focus is buyers, we think the answer, for now, is yes.

We think yes to more property taxes (through improved turnover) to pay and ultimately reduce our debt, yes to more jobs, yes to more overall community confidence.

We would be happy to see more young couples achieve ownership and less renting, less traffic and more calm and there does seem to be a general community perception that things are better when the property market is rising gently.

We welcome reform – but our political system has taken a break (well done), not retired and very soon all the friction and barriers to reform will return.

Our suggestions below are around what can work now and the reforms can come whenever they are going to come. Example – a number of views cite stamp duties as a real negative to economic activity and we agree – and if now is the time to change, then great – but while our pollies are thinking about that, let’s get on with improving our market in the second half of the year.

So back to our headline the market could go up June to December 2020.

For you to understand this can happen – it is necessary to accept that the market has already fallen (substantially) – it is not in the process – it already has fallen – in price and in volume – especially at the higher end.

Anecdotally let’s take a $2,000,000 to $2,200,000 quote.

In February 2020, were thinking it will sell for $2,300,000 maybe $2,350,000.

In April 2020, buyers and sellers are both now wondering will it sell and if it does, will it get above $2,000,000.

If you accept that the market has already fallen strongly and sharply, then from June things could have a way further to go or there is a real possibility it could go up.

How can it go up, with almost all our big stick money policies (interest rates and government spending) running out of oomph?

Below are proven, targetted monetary policies and strategies that could lift the market and quickly!

Walked every day this week – hey read the sign on Jerry’s when you walk past. What a great community-minded team. Well done

Dear Scomo, Josh, Tim and Dan with Philip watching on

You are all doing a great job by the way.

We think you were asking for suggestions on how to bounce back, how to pick business and employment up and how to start getting some taxes back in the coffers quickly.

Here are some ideas that may well work and none of them will cost you a cent. None of them are radical and they have worked in the past. 

Did I say you’re doing a great job

Warm regards

Mal and the team

Three pillars that could get our market back working quickly if they are taken up:

Asia, Auctions and Super Fund Insurance.

Currently, in Melbourne we have a demand action problem – we have strong underlying buyer demand but poor actioning demand.

Why? Is it fear?

Yep, that and self-interest and all that could possibly be allayed by removing some friction.

Markets can have good structure – but those structures can have barriers and friction, which in turns slows them – like an unbalanced wheel and a strong engine.

What we need to do is speed up our market again – begin trading again.

Greater friction and barriers have snuck into our markets and if they are removed quickly, it may prevent our market from remaining lower than it needs to be, for any longer than it needs to be.

With less friction and barriers for buyers, existing underlying demand becomes actionable demand. 

An example is donations to a cause – we all want to, but are nervous to donate – fear/self-interest. However, once the friction is reduced or removed by say a credible celebrity donating, then more of us act. We have an underlying demand to help and donate – and it becomes an actionable demand when the fear friction is removed and we give our money. Markets can change on underlying demand (rumour), but they can really move dramatically when underlying demand becomes actionable demand.

Let’s look at this in a bit more detail.

Friction: Belief

Many markets start with buyer belief, shaped by many things, with the strongest being self-interest.

Buyers will act now, if they believe now is better for them, than in 6 months.

If they believe in 6 months it will be better or unsure, those buyers are less inclined to act now.

Fear can be a great handbrake, but the fear of loss can also be a great motivator.

Lubricant:

Asian buyers and Asian money initiated the pullout of the GFC for the whole of Australia, starting in North /Kew in early 2009.

And yet what is being said and implied about Asia right now, on some occasions is not conducive should we want that love to be repeated.

Some of what is being said about Australians first, of Asian background second, is total BS and should be shouted down. An Aussie is an Aussie.

If both major political parties are getting us to a population of 50,000,000 or whatever by 2050 then why alienate our Asian cousins – why not bring forward some of that growth (and the taxes it attracts) to spike now and then flatten next decade, as opposed to a linear climb?

The current message given to overseas Asian students seems to be shortsighted – the message could be delivered with far more kindness and empathy and a little more transitional help. These students are future influential Asian leaders and decision-makers, so besides debt and climate, this is another issue our children will have to deal with, if we do not readdress quickly – there is a smarter way. But I digress.

Back to now – Chinese and other foreign citizens and even our own ex-pats may well be looking for places to put their money pretty soon. Let’s be a first-responder and make us the vessel of their choice.

Yes, we need to better direct overseas money with regards to pressure on our cities and housing affordability for our young people. We can, with some thinking policies and systems, encourage good foreign investments into the right areas, right now.

So maybe consider better messages to our Asian friends and harness their input in an appropriate manner – bring them into the Aussie family to be Aussies Oi Oi Oi. This could quickly give belief to all of us that property prices will be going up. That belief will increase more demand action NOW and then action begets more demand action and ultimately the market begins to lift as the screw turns back up.

Premium Taxes, FIRB, directions and quotas are levers, that if used effectively can control, should demand build to quickly. (what a problem haha)

Premium taxes – A message to Asia – we want you – for the next twelve months normal stamp duty applies if you in regional and new build areas. After that back to the existing higher tax regime.

Friction: Trust

Lubricant: Auctions (limited as in funerals)

When you hear that property taxes make up 50% of the budget and you hear Treasurer Tim saying that a 10% drop in property prices will result in a similar drop in the tax take in 2020 you immediately think – Tim, you’re not telling us all the bad news.

Our market is not just price, it is turnover and turnover is already in the toilet and so will our Victorian budget be, if we don’t get back to bringing in those dreaded property taxes.

But I digress again – apologies.

Back to trust, trust in the system is the second key component in raising actionable demand for our Tim’s tax needs.

Currently, we have replaced our most trusted mechanism for transactions (Auctions) with our least trusted transaction mechanism (Expressions of Interest – EOI)

Let’s not sugar coat it, below $3m EOI’s are a nightmare for all involved when compared to a street auction. Buyers baulk, Sellers mistrust and Agents don’t like them.

EOI’s are frictous (is that a word?) and fractious compared to auctions. 

Nobody is saying Auctions are perfect, but they are so much more transparent than EOI’s for the inexperienced.

Transparency builds trust and with trust comes more demand action.

As we said you are more likely to give your money to something you trust.

If 10 can work for funerals, can it work for auctions?

Just suggesting Brett, not demanding – you and your colleagues are doing a great job and we in real estate are and will continue to follow your rules. This is purely a suggestion to help Treasurer Tim out with property taxes and buyers and sellers with trust and OK it will help us agents too (there we go, self-interest again) – if you feel it will make a negligible difference to overall community safety.

  1. Bidders register via an agent selected process to a maximum of 10.
  2. Markings on the ground or if inside due to rain. (And maybe on the property, not on the street). No viewing of the home on auction day.
  3. Top-end of quote is the reserve, so no wasted travel, if it’s going to be an auction.
  4. signed electronically
  5. Brett not suggesting you change the 1 person private inspections rule – that is a positive thing for our market.

We need more money in our government account and fewer funerals – auctions will contribute to both if they are deemed safe.

Friction: Risk

Finally, even with belief and trust – actioning demand needs good monetary policy – and in this case, it’s more local cash but with prudence – if we want a second half improving market.

Cash will dry up from banks as they worry about their loan books and capitalisation, which we want them to. We agree they should.

Banks will feel they cannot take any more default risk and they will make lending a lot harder. That is fair enough.

So what is the problem – its money yeah – but it stems from feelings of risk, which is heightened now.

Price risk, job risk, virus risk and ……. Bank Risk

Lubricant: Large Super Funds Insurance.

A solution as it has been for hundreds of years, insurance and/or other innovative financial or mortgage products, especially for the young homebuyer. Share the risk, spread the risk, remove the additional risk from banks.

C’mon Major Super Funds please show us some creativity and innovation on a small low-risk scale – that you may be able to ramp up and give yourselves another solid income stream.

It’s profitable, low risk, you protect your income base and you help your community.

Currently, banks are doing everything asked of them and more and the community is heavily reliant on a prudent, strong and caring banking system. However, we still need more money if we are to see a rise in the market Jun to Dec 2020.

Without more money the market takes longer to improve, as actionable demand needs fluidity, it needs freer money.

That necessary money could come from the Super Funds.

There will be large Super Funds looking for investments right now and what better, safer and returns with leverage investment are there than young Australians who want to buy their home.

This is not charity – this is profitable.

The buyer is still at risk if he or she defaults, but this time the bank is not.

The larger super funds take the risk for a premium fee and in an improving market can decide whether to hold or sell if there is a default.

Would you be happy to buy at $1,500,000 with a 1% insurance premium on top of your in the now discounted market, or not buy at $1,650,000 irrespective of as you don’t have the loan?

There is a Loan Insurance market preferably in private enterprise, but possibly the government needs to encourage a widening of the market – it may be a lot cheaper than a low tax collect and lots more unemployment benefits handed out.

So our view is the market could go up from June to December if belief, trust and smart additional monetary policy encourages healthy, actionable demand to increase.

And if we/I am wrong then once again those chimpanzees who get it right 50% of the time, with an odds and even coin flip, prove themselves once again to be smarter than me.

Who really knows.

No harm in being a bit positive right now – we got through the ’90s, 9/11, GFC and many more difficult things as today reminds us.

Lest we forget – our male and female diggers and what we were all shocked by this week. Thank you, ladies and gentlemen, in green and in blue.

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