Sunday Supplement 04/10/2020

Oct 4, 2020

The clock ticks around into Q4 2020 and it is hard to believe! My year has been characterized by either trying to do 5 things at once, or sat waiting for things to happen and feeling a touch powerless at times. I’ve kept on track by upping my consumption of what some of the top investors do and say in these situations, specifically W Buffett with a good eye on R Dalio and others too.

Auction properties look to have come down to purchasable prices again as stock levels have started to return to somewhere near where they need to be to not have a huge demand and supply imbalance. And it would also be impossible not to notice the cooling of the market since last week’s government announcements.

One thing needed to understand how the market will go is understanding when the debt pressure really starts to come back. Last week kicked that can down the road again – receivers are still operating well below capacity at this time. This has I believe kicked the can into next year…..Christmas season will soon be upon us and with many still desiring a well deserved holiday, if quarantine rules are lifted in time (not likely but not impossible) then we could see a particularly quiet December.

That leaves next year looking like a huge puzzle with the following pieces (not an exhaustive list):

  • Ultra low rates.
  • Lack of newly built stock thanks to Covid – a further 100k+ houses short without a doubt.
  • Fewer sites in development due to uncertainty.
  • A real potential of a massive surge in demand upon release of a credible vaccine.
  • Commercial property repricing/adjustment to the new world, whatever it is
  • Reality biting as we see the difference between intentions and actions on the back of the lockdown/covid situation.
  • Difficulty of finding assets to invest in with significant enough returns to pay obligations (e.g. pension funds).
    Debt recovery to come into play at some point.
  • Credit availability to likely be high but perhaps with some blips yet to come.

Lots of news on both sides there. Stamp duty yet to be resolved too. Many baby boomers will be seeing zero returns on pension funds where they were expecting something and some may well turn to investment property to generate positive real returns. As a result I think the market will be more volatile than the average year. That much is certain. There will be opportunities for the level headed and well capitalised or well financed on the back of that.

News wise there has not been lots of note – the last week of the quarter is full of figures always but what’s happened has gone and trends are nearly useless at this time because of all the false figures and pent up demand. Mortgage approvals at a post-credit-crunch high was one noteworthy piece of news. As leverage gets cheaper people who don’t necessarily “need” it will get stuck into it I’m sure.

One piece of local news which made big waves was the Warwick university “cull” of its rent to rent stock. It isn’t clear how many units the scheme had as I don’t believe this is public information but it was one of the largest in the country. This will see many thousands of empty rooms in Coventry by December and represents significant opportunity for repurposing. Whether Warwick will come back in at lower rates and have just been sharp here…..we will find out relatively quickly! Very disruptive though and simply highlights why you diversify – anyone whose only tenant was Warwick will need to move quickly and effectively before the rest of the market do.