Podcast: What Coronavirus Level 3 Means For the Property Market | Ep. 223

Posted by Ed McKnight on 27/04/20
What Coronavirus Level 3 Means For the Property Market 001
Listen to the Show

Listen to the Show

Show Notes

What's Covered in the Show?

In this episode, we discuss how the property market will operate under Level 3, and how cour advice has changed now that we are moving through to level 3.

We are finding that there are good deals available in the market and that developers are offering discounts in order to move more of their properties. We don't however anticipate that this is going to stay around for very long.

We also mentioned the upcoming Property Investors webinar. This is where we will teach you how to grow your property portfolio from 2 to 5 properties.

Transcript

Transcript of the Podcast

Ed McKnight: Hello and welcome along to the property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and today on the show we're talking about Coronavirus level three.

Now, just a few moments ago, we had an announcement from the prime minister, which will be yesterday by the time this is released. There is an announcement that we are moving down to level three from level four coming Tuesday, the 28th of April, so in one week's time. And so, what we want to do is talk about what this actually means for property investors, what it means for property managers and some movements that we've seen already in the market and what we would expect as well.

So, Andrew, walk us through what should property investors really keep their eyes on now that we are moving to level three, what does this mean?

Andrew Nicol: So the good thing about a level three Ed is that we've got a bit more ability to do the things that we need to in due diligence and, and carry on business and not as normal, but a bit more normal than currently in level four. And so, it's good to have a definitive timeframe on this.

Whilst we're still a little bit cautious when clients book contracts on properties or anything like that, we've kind of loosened the criteria around what we think it should look like for people moving forward. So let's just talk about some of the things that you can do in due diligence that you weren't able to do in level four.

So firstly, you can get a valuation done. So, if you're researching a property and you're seeing whether or not it makes a viable investment, one of the steps that we always recommend is getting a registered valuation done. So now you can have a valuer go to the property or go to the site and actually have a look at the physical property itself. So, this is quite helpful if you're buying outside of your city, so you can still have some eyes and ears acting for you to tell you that it's a good reasonable deal.

Even if you're buying in Auckland and you live in Wellington, for example. So that's important. Banks are going to have more ability to trade normally or more normally. And so probably that's going to help speed up some of the application process. Brokers aren't allowed to meet with their clients yet, so you still have to do that remotely. But given that nowadays we use emails for mostly everything, I think that's probably not going to be an issue at all. And so, you're actually going to be able to do inspections yourself.

So, if you're buying a property, you can actually go out and have a look at it. Again, this is going to be under restrictive measures. You're going to have to make sure the social distancing is enforced, but you will still be able to go out there and have a look at a property that you're wanting to buy or invest in, which I think is really good. From a property management standpoint, this opens the door for a few more opportunities as well, because now we can actually settle a property and or put a tenant in there. So that's really important.

So if we've, we've got a few properties at the moment which have just been delayed with settlements, now those can actually occur and a property manager can put a tenant in, so you're not sitting there with a house that's empty during the lockdown level four, so then you can have money coming in from day one. So that's really important. Inspections are the only one that we've still got a question mark over at this stage. So, the regular inspection that your property manager does every three months, we're not quite sure how that's going to look yet.

We're waiting for some direction from tenancy services on that. But we expect that so long as social distancing occurs and people are safe, you will be able to have your house inspected again to make sure that you're compliant with your insurance and that your tenants are looking after the house. So that's really important. So, from what we're advising our clients to do, so entering into a level three is a good milestone for us.

We're saying now's an opportunity to get a deal. So, we spoke earlier on about the mid-range of the opportunity. We're going from the mum to the mid-range I think that's what we called it...

Ed McKnight: Momentum we called it.

Andrew Nicol: Momentum. So, this is the stage where you need to start thinking about getting a deal. So, I've got a number of investors that I'm working with at the moment that we had going to develop as in saying right, you've had four weeks of no sales.

You'll probably need some deals to keep the bank happy and suddenly there's a little bit of desperation out there among developers. And so, they are willing to do deals that they weren't willing to do five weeks ago. So that's really exciting. It means that people are going to get a really good deal that they wouldn't have got otherwise.

And in some instances, one of my clients is getting a property $20,000 under valuation, under the valuation that the developer was going to sell it for only four weeks ago. Another one of my clients is buying an Auckland property $50,000 under the valuation that was done about a couple of months ago. So that's really cool.

Those people are going to see some really good growth in a short period of time. Our advice is still to give yourself a bit more time and due diligence. So yes, it is probably okay to do a sale and purchase agreement now, if it's conditional. So, if it's conditional on due diligence, give yourself four weeks, not the usual two weeks that you might have.

Give yourself four weeks to do all of these checks, because valuers might be pretty busy. There might be a bit of a backlog. It's going to take a level 2 before you can travel around with a bit more freedom. So, if you're buying in a different centre, you're not going to be able to do that inspection until level 2. So, give yourself a bit more time.

But putting a contract, to put a property on hold with a due diligence clause of four weeks as of now is in my mind quite acceptable and quite a reasonable approach to get yourself a good deal.

Ed McKnight: And just talking, Andrew, about that deal that you just mentioned, where your client got 20 K off the property. Just to put that into context as well, for that specific property, it was a 4.17% discount on the original valuation. So just over 4%, which I think is pretty good.

Now, I know this one wasn't in Auckland, but just to give a feeling of the scale of it. The last recession or the last economic downturn that we had, Auckland house prices only fell by 4% and it's relatively similar for a lot of the major centres. So, getting a discount of over 4% is really, really good. And in this case, all your client had to do was saying, Andrew, can I get it cheaper?

Andrew Nicol: Dead right Ed.

Ed McKnight: Fantastic. Well, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast.

It really does help us get the message out to more people and hey, if you want to learn more about how to grow your property portfolio, how do you go from two to five properties? Then why not come along to our webinar, which is next Tuesday at 7:00 PM we are going to be opening up our Excel spreadsheets to show you how to grow a portfolio if you think you're currently limited by the bank.

This was the most popular topic that came out from the property investor survey that we did not so long ago. So, we're jumping on this, we're taking your feedback and we're implementing. I'm going to drop a link to that in the show notes, or you can just go to Opespartners.co.nz to sign up for that, there.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.