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Many have predicted this economy slump, in fact, I think it was way overdue. The economy has been ‘artificially’ supported by record low interest rates and human factors. However, most did not expect the trigger was by a virus, COVID-19.

An economy downturn is a cyclical event due to the availability of credit, which is what most investors are dependent and leverage on. COVID-19 did not cause the economy crash, it was the trigger. Like previous economy downturns, it is an opportunity for professional investors. Prices are dropping, but not necessarily the value of the assets, and this differentiation is the opportunity. As I always tell my investment partners, “we invest based on the value and not the price”.

Property transactions have stalled due to restriction on movement and property valuation. Hence many lenders withdrew their mortgage products. However, property prices will only fall if there is permanent finance restriction and a supply/demand ratio increase. Finance is now restricted, however there is no liquidity issue (not like 2008 crash). The lenders have money, and probably wants to do business and lend, but only to the low risk investors.

Nova Financial – MPU 2

How about property supply and demand? One would argue that the supply and demand are relatively unchanged once the lockdown is lifted. Property owners who needed to sell, will need to sell, and buyers who needed to buy, will need to buy.

Now is the buying opportunity, not in a few months. The lockdown has effectively eliminated the competitions.

No physical viewings, but there is virtual viewing, or working with professionals who already have a good quality stocklist. Quality stock is the key. I am re-negotiating most of the properties I viewed pre-lockdown.

Whatever you do, do not keep cash for long. Governments are throwing money at tackling COVID-19 (350bn emergency package, wiping out NHS 13.4bn debt), rightly so. Likely, much more is needed. Now, who is going to foot the bill? The government must either generate more income (raised taxes) or create money (keep printing more money). Taxation is a must.

To drive up the economy (and inflation) government employ quantitative easing. Most value/prices will increase (property, salary, beverages etc.), except cash savings. Effectively a ‘stealth tax’ on cash.

Therefore, keeping liquid cash is one guarantee way of losing out.

Investors know good quality property value only goes up over time, and the investment opportunity has now been triggered by COVID-19.

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Jun Cheong
Jun Cheong - Property Portfolio Investor

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