David Chu, Head of International Business, recently joined Thomas Sung on the SBS Radio Cantonese Program to discuss the Australian property market from a financial perspective. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Thomas (host): The RBA and the Commonwealth Bank have each issued research reports, showing that the property market is under tremendous pressure due to the pandemic and may face a drop of up to 40% in the future. Is this the case? First, we will have Mr. David Chu, Head of International Business of ShineWing Australia, share with us his analysis of the Australian property market from a financial perspective. In addition, we will have Peter, who works in the real estate industry, share with you his view on the property market from his personal experience.  Let us first hear the thoughts of David.

David: In relation to office buildings, for example, due to the restrictions, many office staff have been working from home. It has been close to half a year since the local onset of COVID-19 in March. Through ongoing practice, many companies seem to have realised that they do not necessarily have to return to the office environment. Therefore, some of them have changed their future requirements for office buildings, or will instead reduce their footprint by working from home. Some even divided their staff into Team A and Team B to take alternating shifts. From this perspective, the demand for office buildings may decrease. There has been some media reporting lately. Two days ago, it was reported in the Australian Financial Review that a property group was buying Grade C and D office buildings and converting them into residential buildings. On the other hand, some investors feel that as soon as the pandemic is over, people’s passion for travelling will resume. These groups anticipate an ongoing demand for hotels. Therefore, in the long run, if the price is reasonable, they will buy Grade C and Grade D office buildings and convert them into hotels.

Thomas: What about residential properties?

David：Yes, due to the pandemic, many residents in apartments cannot go out due to the stay-at-home restrictions. Even if there are gyms, swimming pools and even other facilities in the building, they are also closed. This will undoubtedly affect newlyweds or the elderly, but more so families with small children. If the children can’t go anywhere, they may feel bored and become impatient. At the same time, for some households, the whole family is packed in an apartment. When the parents have meetings or work via Zoom, they also have to help their children with online classes and home schooling, thus affecting each other. Therefore, some families have begun to consider whether to move to a house or a townhouse that provides more space and at least a backyard for their children to move around. If a swimming pool can be afforded, there will be no need to go to a public swimming pool. This at least gives the children a place for activities. Therefore, in this regard, the pandemic has prompted many parents to think about the liveability of apartments. This may change the real estate market.

Thomas: So there is a new trend in the business community along with the property market, right?

David: Some experts mentioned that commercial buildings may be affected, and residential buildings may be changed too. Some experts have noticed that logistics has become very important during the pandemic. Many people shop online. This may increase the demand for warehousing, cargo storage, logistics and transportation services. That is why some experts have said that there may be an increase in demand for industrial buildings and warehouses. At the same time, there is a new trend in the Australian housing market, known as the build-to-rent scheme. Once a residential building is completed, it is not sold but rented. This has become a new trend in the property fund industry. Many funds would invest in apartment buildings, and then lease them out once they are completed, to generate fixed income. This is an emerging trend in the real estate market.

Thomas: Does this deployment show that the financial sector has better expectations for the future recovery of the property market?

David: Opinions vary from one to another. A few factors underpin the Australian real estate market. First, housing demand depends on the intake of immigrants. The population of immigrants has grown in the past ten years. This has largely contributed to the property price rise in big cities such as Sydney and Melbourne. Second, international students. The more the international students, the greater the demand for housing. However, both factors have changed because of the pandemic. There are fewer international students, and the Federal Government has tightened migration policies. It remains unknown what these changes will bring about in respect to housing demands and prices.

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David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post Analysis of the Australian property market from a financial perspective appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the current state of the Australian economy and what it’s future may look like. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: On Tuesday, both the Chairman of RBA and the Minister for Finance separately issued statements to the public on Australia’s financial policies. What exactly was said in the statements? How do they  feel about Australia’s economy? What is the reaction of the financial community? To answer these questions, we once again welcome Mr. David Chu, Head of International Business of ShineWing Australia, to share his analysis.

David: The RBA will keep the interest rate unchanged at 0.25%. In fact, this is within everyone’s expectations. Economic experts said that the change in interest has been determined, but the most important thing is to hear what the RBA Chairman says in his speech.

Host: So what exactly is disclosed?

David: Yes, the RBA Chairman was ‘cautiously optimistic’ in his statement. Economic experts also found that the Chairman was calmer this time than on the last two occasions. It seems that he also feels that the impact of the pandemic on the Australian economy has been alleviated, so their conclusion is that the Chairman believes the impact of the pandemic on Australia has almost reached its peak.

Host: This is a good thing. If the Reserve Bank does not add  more measures, it would mean that the current monetary policy is functioning.

David: You can say that again. At the same time, however, economic experts say that the RBA has almost exhausted its ammunitions, and the interest rate has fallen to such a low level of 0.25%, which is already right down the bottom. Australia and Europe are in different environments and it is impossible for the interest rate to go to negative figures in Australia. Therefore, the interest rate, as a tool, at 0.25% has already reached its limit. The Chairman also mentioned that they have another set of measures, which is quantitative easing.

Host: That is buying bonds.

David: The question is what kind of bonds to buy? Bonds also have credit ratings.

Host: Yes, yes.

David: In the past, if the RBA wanted to buy bonds, they could only buy A1 rating bonds for short-term ones, and now they can buy A3 rating bonds, which is a category of lower quality and higher risk. In the case of long-term bonds, the RBA would only buy the AAA rating bonds in the past, but now they have lowered it to BBB rating bonds. That  means, if further quantitative easing measures are used, the RBA will be willing to buy some lower-quality bonds to increase liquidity. This is not a bad thing, but after all it is hoped that liquidity can be maintained without buying that much.

Host: Many people say that in buying these bonds, the RBA is in fact helping some companies. Since in a very volatile situation, many people will sell their bonds, regardless of their grades, for cashing out. If your bond itself is rated low, plus in a very volatile situation, no one is willing to take over, and then there could be a crash, and once the crash happens the company may collapse. Is the RBA now trying to help these companies?

David: In fact, the RBA’s action this time is mainly to help some financial institutions, because these financial institutions and investors are the main buyers of the bonds issued by companies. If the financial institutions have got these bonds which have a lower liquidity, they cannot dispose them without a big loss. If the RBA buys them that will allow these financial institutions to get some liquidity back for further lending. That’s why it is mainly to help some financial institutions. As to what kinds of bonds they are (like you just asked), we would recall that the 2008 Financial Crisis was caused largely by some junk bonds collapse. Whoever was holding those bonds was in trouble. That led to a lot of financial losses in the market in that situation.

Host: Due to time constraints, let’s change the topic. The Treasurer attended a national press conference on Tuesday. The picture he portrayed for the Australian economy was pretty bad, right?

David: The Treasurer estimates that the unemployment rate will reach 10%. The figure released by the Australian Bureau of Statistics last time was only 5.2%, mainly because that 5.2% was based on statistics in early March. Now it will reach 10%. He said that if we did not have our own stimulus package in Australia and had instead followed Europe, our unemployment rate would have risen to 17%. Take this as giving credit to himself. However, others from the financial sector, such as ANZ Bank, believe that the unemployment rate may actually rise to 12-13%. As for the government’s stimulus packages, a total of $320 billion has been used, equivalent to 10% of GDP. Without these measures, if the economy would have continued to slump and Australia would have suffered $4 billion economic loss per week. Therefore, the Treasurer said that through these economic stimulus packages, Australia is managing to stabilise its economy, with the hope of a rebound after the pandemic. Let’s see how the situation will evolve. Economic experts have already begun to say that the pandemic is close to an end, and it is time to think about how to make the economy start again.

Host: Did the Treasurer say that once the economy starts again, what preparations we should make now, such as some forward-looking policy deployment?

David: They said there might be some measures coming out. Many economic experts have proposed many different strategies. It is like, for example, when a car does not start due to a faulty battery and you want to make it start again. You need to jump start it by connecting a cable to another battery. What are the specific measures or methods in consideration? In general, economic experts say that there are three most important points.

First is that there must be some measures to help SMEs, because SMEs are almost the driving force of the Australian economy. If they cannot start again, there will be an impact on the entire economy, especially employment. In terms of SMEs, the most important thing is to target the hardest hit industries, i.e., tourism, leisure, retail, restaurants, etc., to help them start again and hire new employees.

Second is that, as some economic experts suggest, to allow international students or foreigners holding short-term working visas to return as soon as possible. That is because, due to the pandemic, 300,000 people on short-term visas have now left Australia. If you think about the total population of Australia that is only 25 million, 300,000 comprise a relatively significant group. Some experts say that we may need to allow these people to return as soon as possible. In the first place, they will create consumption in Australia; second, we need to generate export income provided by foreign students for Australia. It amounts to tens of billions of dollars.

The third is, as some economic experts suggest, to take this opportunity to change the tax system. Despite so many investigations on tax reform, no substantial changes have been made. They also mentioned that, for example, when buying a house, we need to pay stamp duty. This stamp duty actually goes into the state government’s treasury, but economic experts suggested that the every dollar of stamp duty may have an adverse effect equivalent to eighty cents on the gross national product.

Another thing is the Australian corporate income tax. The corporate income tax rate is now 25%. Economic experts also say that every dollar of corporate income tax going to treasury will have a fifty-cent impact on the economy. So do these types of taxes, which have a greater impact on the economy, require some sort of reform? In their view, it is certainly impossible to simply cut taxes. After all, the government needs money to spend. They may consider starting with changes in GST, because this tax is only paid when something is bought. In this way, the reduction in stamp duty and corporate income tax can be compensated by an increase in GST. This provides more encouragement for people to engage. By making more money and paying less income taxes, they increase their after-tax income. If the local government receives less money from one source, it will make up for it from other sources. So there are different approaches, depending on what measures the government will take to get Australia’s economy back on track as soon as possible.

Host: Yes. David, you are a professional accountant. A lot of people are discussing one thing. Even when Australia is in a good economic condition, the reporting regulations, tax arrangements and accounting requirements are quite burdensome, making some companies spend a lot of money in compliance. What is your opinion on this?

David: Yes, the tax system in Australia is really complicated. The more the tax regulations, the higher the compliance reporting requirements. This has caused the public to spend a lot of energy and money on tax compliance. Therefore, business groups say they hope that the tax system can be simplified, so that the general public can save their energy for more constructive activities, such as doing more business or even spending time with their families. This is a good thing.

Host: Yes, yes. Big thanks to Mr. David Chu, Head of International Business of ShineWing Australia, for sharing with us his opinions on the Australian economy and the statements made by RBA and the Treasurer issued on Tuesday, as well as the forward-looking views of the financial community. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post What can we expect from the Australian economy? appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Reserve Bank of Australia’s new measures, as well as big business and public sentiment in response to COVID-19 in Australia. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: After my briefing on the global securities markets, let us get back to Australia. The Reserve Bank of Australia (RBA) announced yesterday that they will not take further interest rate actions. The government and the RBA have recently been introducing one measure after another. What is the reaction from the business community? What is the reaction from our fellow Australians? Today we have David Chu, Head of International Business of ShineWing Australia, to share with us his analysis.

David Chu: Actually, since my last sharing with you, the RBA has held a special meeting, to cut the rate to 0.25%. At the same time, the RBA has taken quantitative easing (QE) measures. QE is meant to increase  market liquidity. The worst thing at this stage is that when businesses are not doing well, a lot of SMEs will be stuck with receivables and inventories. If no one comes to buy their products, they will not be able to recover their funds. Therefore, the RBA provides financing of roughly $90 billion to the market, allowing banks to sell their government bonds to the RBA for cash, so that the banks will have stronger money supplies to lend to businesses or clients that need them. The overall QE approach currently applied by the RBA is similar to the approach taken by the United States in the last financial crisis. There is a little bit of difference in the execution.

Last time, the Federal Reserve clearly told you how much they would buy, or how much they would supply to the market. This time RBA will keep track of the market movement before deciding on the amount to put in. They aim to keep the market rate at around 0.25% through buying and selling government bonds. The RBA has so far used about $36 billion, about one quarter of the budgeted amount, since the announcement of QE measures. Secondly, there is another measure which is aimed at financing around $15 billion for some smaller banks and non-bank financial institutions, by taking over their home mortgage loans. The banks generally lend money to people to buy properties with repayment terms of 20 or 30 years.  As these funds will remain illiquid for 20 or 30 years, the banks usually bundle these home mortgages and resell them by securitisation.

In turn, the financial institutions who buy these bonds also accumulate long term investments. Therefore, the current QE measures also include around $15 billion exclusively for buying these home mortgages, giving smaller and banks and non-bank institutions opportunities to recover funds, in order to help some SMEs through additional lending.  This is just for businesses with cash flow issues.  Although business volume has reduced, they still need to pay wages and costs. These measures will allow SMEs to have some breathing space.

Host: Let us come back to the Stage 3 lockdown. It is apparent that all businesses languish. A lot of stores cannot open for business. Measures are being introduced with the hope that businesses can continue to retain their employees. In fact, how are the big companies dealing with this?

David: The government is providing around $130 billion to businesses, so that they will not lay off employees but retain them, and will allow a quick rebound when the economy recovers or the pandemic subsides. Even so, a lot of businesses really cannot resume operations. First, they might not have demand anymore. Second, even though they have business, the supply chain may have been upset, given the lack of raw materials or components, which prevents production from resuming even if orders are coming in. That being said, I have seen some organisations trying  to work things out with their employees. Given the overall reduction in business and customer demands, companies have asked their employees to work 3 or 4 days a week and pay 60% or 80% of their original salary, with the hope that the whole company will get through this tough time together. The most important thing is to not let the people of this country lose hope. The government is introducing a number of measures to give people a greater hope after the pandemic passes.

Host: What are the reactions among the people?

David: A couple of surveys have just been published. Professional research firm Roy Morgan interviewed 1,000 respondents recently. People showed greater recognition of the government last week than three weeks ago.  For instance, after the introduction of these government measures, according to their survey, 65% of Australians are now satisfied with the government’s measures, as compared to merely 43% two weeks ago. Also, people have a greater hope for the future. Two weeks ago, 85% of the respondents indicated that the darkest days have yet to come. The most recent survey showed only about 60% were holding that view now. This is a sign that people have increased confidence in the future. On another note, we can look at consumer confidence, which increased by 10% in the past two weeks, showing positive reactions to the measures taken by the government.

Host: Though these are expedient measures, they at least will help to stop people from feeling down, right?

David: Yes. Some experts indicate that it is most important for people to have hope for the future in the current situation, and some articles discuss how to maintain such hope. First is to embrace this situation. Second is that people should work out a plan which should not include expectations to get everything to be accomplished instantly, but rather aiming these accomplishments at one or two weeks, namely setting short term goals. Third is we may have to be courageous. Rather than being focused on the dark side of something, try to look on the bright side of it. Fourth is we may need more communication with each other.

Now, the issue is that many companies have asked their employees to work from home, resulting in a decrease of communication between work colleagues. Some experts say that both employers and employees can create some opportunities for communications among themselves. Bosses need to communicate more with their people, to alleviate the negative emotions due to the failure to physically come to work and loss of social life as a result of the pandemic. Many experts advise people to look on the positive side.

Host: Then what can people expect?

David: It seems no one can make any forecast at the moment. All we can hope for is that the pandemic subsides as soon as possible. It could be one month, two months or three months, the sooner the better. If these government measures work well, it will take a shorter time to rebound after the pandemic. The most important thing is that the recovery of the global economy cannot be done by just one or two countries, but requires concerted efforts of all governments around the world, as noted recently by Henry Kissinger, former Secretary of the United States of America. Only by doing so can we have a more rapid rebound.

Host: Then we can just hope for a better tomorrow. Ok. Big thanks to Mr David Chu, Head of International Business of ShineWing Australia for sharing with us his view on the current economic situation of Australia. Thank you.

David: Thank you. Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post COVID-19 in Australia: RBA measures, big business and public sentiment appeared first on SW Accountants & Advisors.