An investment manager has recommended investors not place too much importance on property prices over the coming months due to the effect of the COVID-19 pandemic on the market.
“There is little doubt sales activity is going to slow dramatically through April and beyond. So house price numbers as they’re reported over the next three to six months are not likely to be representative or particularly useful,” La Trobe chief investment officer Chris Andrews said during a webinar his organisation hosted today.
Andrews suggested people study the pattern of house prices during the global financial crisis, particularly in the Sydney and Melbourne markets, as a guide to how the current market shock might play out.
“We’ve seen two recent episodes of house price shocks in those capitals – we’ve had the global financial crisis and then of course we had the 2017 to 2019 credit squeeze,” he said.
“In both cases there was an initial drop of around 10 per cent. So the largest peak to trough observation in that period was Sydney in the 2017 to 2019 period at 14.9 per cent retracement.
“In both cases and in both cities that was followed by a sharp rebound as more normal market conditions re-emerged.”
He warned individuals who are investing via fund managers to monitor one element of their processes very carefully as markets face coronavirus-based challenges.
“Liquidity management is an issue investors should be thinking about. [It’s] something we have spent a lot of time on over many decades at La Trobe Financial,” he noted.
He then revealed a major element of the manager’s liquidity plan to deal with the current situation.
“We’re actually just going to go overweight cash. We’re going to hold a lot of cash to give us complete conviction and confidence we can meet investor redemptions as and when they may fall due.”