There is another wave coming, but not of the virus. This wave will be of the number of property listings. In this update we talk about increased listings, the failed SME funding scheme and open banking.
Another wave
We are about to see a massive wave hitting our economy and property markets, but it is not an infectious wave, it is one of properties for sale.
During the virus crisis we saw a record low number of listings of properties for sale across the country. We have already seen a sharp number of listings of new properties for sale and in Sydney a 12.3% increase compared to a month ago.
Over the year we have seen a material decline of about 5% to 10% in residential property prices and combined with the “cliff” which we talk about later and financial stress weighing on investors and rental returns it might be making people nervous and want to rush to sell.
Commercial property is a different story and one to talk about another time, mainly because the change in rents and yields and therefore value has not flowed through to pricing in the market yet.
But for houses and apartments there has been a drop, but not a massive one.
At the peak fear moment in late March and early April forecasts of 30% declines in prices were being thrown around.
This is a logical perspective as we are in the worst recession in a century or so, but it is unlikely we will see that much of a drop based on current conditions. Mind you, if iron ore prices drop to around $20 and China or the US has a recession that flows to our economy that drop is probable.
For now, it appears as though we are looking at a pretty stable property market.
In many ways this is crazy.
Unemployment is the highest in a generation.
Average Aussie household debt is the highest almost in the entire world at nearly 200%.
Property prices have doubled in the past decade.
And we are in a recession right now.
But even with all that there are a few especially important factors fueling and supporting a buoyant property market and ever-increasing prices.
In the last update I gave my prediction for a property boom in 2021 based on 5 Forces that are fighting the downward pressures, including supply.
Even with a huge number of apartments coming to market for sale (that are highly likely being sold off by investors) they will mostly be soaked up by first home buyers and other investors.
So far there it does not seem like supply is going to exceed demand, and that is a critical force on property prices.
Small businesses not getting a fair go
Of the $40 Billion dollar funding scheme called the ‘SME Coronavirus Loan Scheme’ Treasury established to support small business only $1.1 Billion has hit the bank accounts of small businesses.
The government but this fund in place and nominated 41 lenders from big banks to second tier banks and fintechs to get this money out into the hands of small businesses who employ 5 million people and spur on economic activity – and it has failed to deliver.
Only 2.75% of the total facility has been used.
The aim was to support small businesses during the darkest hour and only a fraction of those that applied or would have been eligible got the monetary support they deserved.
Under the scheme around sixteen thousand loans were approved worth $1.6 billion but only eleven thousand odd for $1.1 billion has been paid. Getting a loan under this scheme has not been easy and I highlighted this back in May in an update about how it was taking a long time for banks to process and approve the loans.
The government knows it needs to do more, and they will.
The so called “cliff” in September when the existing ~$230+ Billion of loan repayment deferrals and JobKeeper payments stop will not be a sudden stop and I doubt we will see a government that has put in so much effort to keep the economy going through this recession to allow it to suddenly fall off.
We will see the government improve and extend many existing financial support programs including the SME scheme – there will be no “cliff”.
Open banking is finally here
Finally, it is here, I am super excited about this, the ‘Consumer Data Right’ (CDR) more colloquially known as ‘Open Banking’ kicked off from 1 July 20.
This marks an inflection point in the future and convergence of financial services and technology and better experiences and outcomes for people.
I am really excited to see what happens.
As a high-level overview of Open Banking – what it will enable is people to take control of their banking data and share it with various companies and apps.
It means you could get an app that shows you a years’ worth of spending habits categorised and give you recommendations to save money either by switching providers, such as a phone subscription or electricity bill, to helping you understand your own spending habits better and setting aside automatic savings.
There are so many use cases of this that have not been innovated yet and over the next few years we will see an explosion of amazing financial technology apps.
This explosion will see a new breed of ‘good’ financial apps (and banks probably) that will emerge over the next few years, and it will change the nature of the relationship people have with their bank and money.
I would like to point out that in my 2019 yearly wrap up update, where I talked about a few key predictions for this year, I wrote:
This [Open Banking] will be one of the key moments in a long transformation of the financial services playbook from a “make it confusing for people to understand our products so we can charge more fees” kind of mentality that all the banks have had for decades.
To a more “lets help people make smarter decisions with their money, make easier to use mobile apps and be transparent” that many fintechs are offering.
Ultimately, what open banking will enable is this shift to a new financial services paradigm of better customer service and outcomes.
The point I am making in that previous update is that right now money and finance is super confusing for most people and many banks and financial services companies benefit from peoples misunderstanding or confusion and have long lived by making profits from fees and charges that were in the best interest of the bank, not the person.
This is about to change where we will see financial apps become customer focused to save them money instead of trying to confuse them to make a few bucks in extra fees.
Open Banking will enable start ups to develop apps and businesses with the customers best interest front and center, not profits, and deliver a better customer experience while doing it.
The future of financial technology is open.