Gear up for the ‘New Normal’ for Property Sector – Reducing Liquidity and Cash in Post-Lockdown Property Market

  • Apr 11, 2020 NZST
  • Team Kalkine
Gear up for the ‘New Normal’ for Property Sector – Reducing Liquidity and Cash in Post-Lockdown Property Market

Cash on hand is the most liquid asset that can be readily utilised for instantly carrying out economic transactions like buying, selling, or paying debt, and satisfying immediate needs and wants. The current situation of dismay and shock due to COVID-19 pandemic has led to turmoil in the global economy.

Moreover, the same has caused severe disruptions in the operations of the businesses, with several companies coming to a standstill. The disruptions have sparked a liquidity crisis across organisations, industries as well as sectors.

Amidst the current scenario, governments across the globe are proactively extending their aid for various constituents in the economy through economic and fiscal stimulus packages so that businesses continue to stay afloat and individuals continue to contribute in their job roles.

However, concerns and fears persist for industries like property, travel, and tourism, that have been severely hit. The liquidity crisis has forced businesses to lay off employees, consider temporary stand-down of employees as well as put them on leave without pay.

One of the sectors that are expected to experience significant heat from the COVID-19 pandemic is the property sector, given measures like deferment of the rent by the landlords due from their tenants in order help them in times of uncertainty.

The New Zealand Property Investors' Federation predicted for a job loss and slashed hours of tenants, increasing troubles for tenants in paying rent. Moreover, it was also expected that some of the tenants might have moved out of their existing rental property and moved in with others to deal with the crunch. This could lead to a shortage of tenants, and the rental properties would lie idle.

Further, the properties lying idle shall only increase the burden on the landlords. In the commercial property sector, the current crisis is said to weigh heavily on the property owners, and the impact has started to show. Currently, the rapidly evolving situation has put company managements across the globe in a position where they are unable to make any predictions.

Moreover, stock markets across the globe are also expected to remain highly volatile, and the investors are undergoing a struggle to take a stand on the gravity as well as the duration of the repercussions due to the coronavirus outbreak.

However, investors, tenants, as well as property advisors, are in pursuit of ways to navigate through the consequences on the commercial real estate sector. As of now, nothing has emerged in a solid form, so unless a standard view on the COVID-19 effects is reached; everything will remain highly uncertain and misty.

Few things that are very apparent and shall drive change in the property market include:

  • Movement across borders as well domestically has been impacted
  • Some of the airlines and hotel businesses might not survive due to a global standstill in travel
  • Lockdown shall have a crackdown on retail business

However, measures like injecting cash with enough zeroes to support ailing economies, slashing interest rates to near zero, and guidelines for banks have also been adopted.

After all this, many tenants are not in the capacity to pay rent for their rented property. Cash is the need of the hour in the economy in current times. The phase of the real estate sector shall be a very different one once the lockdown period is over.

Moreover, a recent survey conducted by the NZ Property Investors Federation (NZPIF) shows disapproval with the assumption that tenants should be allowed to stop paying their rent and anyone who owns a rental property is rich enough.

Out of the surveyed respondents, around 85% of the rental properties in New Zealand are provided for by the private individuals which include most of the people who are employed or have businesses that form their key source of income. However, this also includes people who are reliant on their rental income to put food on the table and feed their own families.

The survey further shows that the Government initiatives have helped to secure tenants in their homes, through income supplements and fast-tracking welfare assistance.

Among other findings, 2% of the respondents have stopped paying rent, while 6% of tenants have moved out of their rental property. The survey further finds that the landlords have slashed the rent for 5% of their rentals and deferred rent-related payments for a further 1.5%.

Moreover, the survey revealed that the average amount lost for 166 landlords, who had lost their rental income after just one week in lockdown, was $1,059.

Out of the 100% respondents, 59% have lost all or some of their regular income from jobs, contracts or business, out of which:

  • 7% have had some loss of income
  • 33% have lost all their income but have received some government assistance
  • 21% have lost all their income and have not received any assistance

Even though a majority of the respondents said that they were financially secure for the time being, 21% of the people pointed out that they shall need assistance if the lockdown continues for more than a month. Additionally, 5% of the respondents are currently in need of aid.

These findings from the survey highlight the unfavourable situation in New Zealand’s property market. New Zealanders are managing to share the losses of income currently but may not be able to continue doing so for a longer time.

With not enough liquidity, the post-lockdown scenario shall leave consumers with a low amount or even no amount to spend and the market shall experience a significant resistance from the consumers while spending, and the same shall take a considerable amount of time to recover.

The impact of the same along with the soundness of the real estate sector shall also be visible on the financial markets.

   
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