Articles by Matthew Gilligan
Thanks to COVID-19, we are in a rapidly changing environment. Lockdown commenced on the 26th of March. It is quite possibly a two-month lock down, but that is conjecture. We are in the “initial 4-week period”.
The Government is putting things in place to help the country get through this period of uncertainty, which everyone should consider adopting if required. Secondly, there are a number of commercial strategies that I think business owners and investors should be looking at to soften the blow, or frankly, survive. I intend to keep this list updated as matters evolve. If you need help then reach out to us at GRA. We have a lot of experience and can help you with tough patches, including liaising with bankers and IRD, and, if required, assisting with insolvency planning and appointment of liquidators.
Below is a list of tips and commercial comments that I hope will assist you to get through this mess.
IRD Penalties Suspended For Late Payment
There will be no penalties or interest for non-payment of taxes if you are stressed for cashflow.
Many businesses have commercial leases, and this overhead is crippling if the business is closed. Many leases (case by case) provide for rent not being payable when you are denied access to the building.
Under our lease agreement at GRA for example, (which is a relatively standard ADLS lease), the clause is 27.5. The clause talks about a 'fair proportion' of outgoings being payable during an emergency, and provides for negotiation between the tenant and landlord. Proportion in my view, is:
Number of days usable by the tenant, divided by the number days during the lockdown.
Which for us is 0 days / 4 weeks = $0
Take a look at your lease, discuss the matter with your lawyer, and if appropriate, give notice to your landlord and stop paying rent. We did this and rent was ceased by the landlord the same week, saving close to $40,000 a month.
But note it is situational on the type of business. For example, for a warehouse storing goods during lock down, there is still use of the premises as storage. Therefore despite access being denied, there is still benefit, and the proportion payable is arguably higher by such tenant. Whereas, say premises for an accountant or lawyer are unusable, with no stock or goods stored for resale. So the proportion of days usable are closer to zero in my (and my legal advisers') view .
Check with your lawyers, read your lease agreements, and act early is my suggestion. It's well worth looking at.
Government Wage Subsidies
If you haven’t applied for wage relief, you can if your sales (actual or forecast) fall 30% in any one month between January and June 2020 due to COVID-19 (compared to the same month last year). This may well be extended.
Who can get it?
The below is published criteria from Work and Income.
If you're an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy.
Tax Status of Payments
Other Finance Assistance
The Government have put in place a home finance mortgage holiday and business finance package, providing $6.5b for such activity.
Features of the proposed business loan scheme include (extract from Government announcement):
Comments thereto (Business Loans Package):
General Banking and Liquidity Measures
I further note that the government has moved to offer to buy back up to a whopping $30 billion in government bonds from bankers, institutions, and all others who wish to liquidate their position in government bonds. This represents New Zealand’s first money printing undertaking (that I am aware of).
The government and corporate bond markets were looking impaired in mid-March, meaning that there was a threat to bank liquidity (and others) if there was no bond buyer. So the Government is now buying all government issued bonds back (if requested), ensuring plenty of liquidity in the banking system. (When the bond is bought back, a bank gets the cash deposited which thereby provides cash in the system.) A similar but different arrangement is in place for corporate bonds, for the same motivation (maintaining banking liquidity), where the government are buying corporate bonds.
And the government has reduced bankers’ core funding ratios from 75% to 50%, which alleviates pressure on bankers to hold more cash.
All and all, this amounts to a surety that money should remain available in NZ, and cheap. Two key ingredients of house price and business stability. So we should all take great solace in that.
Convert Your Loans to Interest-Only for Cashflow
For everyone’s consideration, think about swapping your loan from P & I to interest-only. For example, swapping a one million dollar loan from principal and interest to interest-only increases the cashflow by $30,760 per year.
Residential tenants can’t be evicted before 60 days of non-payment of rent, as long as they ‘tried to pay’. This is going to be tough for landlords. I expect many tenants will see this as a loan or license to get into arrears, and recovery of the money will be extremely difficult for landlords. I would have thought the government would underwrite the rents, given they are (without consultation) exposing landlords to such credit risk. But this is in line with the general attitude towards landlords from this government it seems. I would suggest:
Just be aware that along with the pandemic, the bottom-dwellers of the world are taking the opportunity to conduct all nature of COVID-19 scams.
Reports include opportunistic attempts to use the COVID-19 pandemic to trick people into:
What will Coronavirus do to House Values?
This blog is an overview of the help available and things to consider doing. In my next blog, I will talk about opportunities in property that will inevitably come from this C19 meltdown, and indeed to what extent I think there will be a meltdown.
Suffice to say in my prelude, I have always preached buying on fundamentals. Areas with poor employment fundamentals (narrow/one horse towns), cause people to move to get a job. This makes one area experience recession much harder from a housing perspective, than say another with jobs. If you read my book Property 101, you would have got this loud and clear – a message that has been quite controversial to those investing in small towns. Some of those investors will reflect on my comments, as we see what areas are most volatile in coming years, and consider further why that happened. In a word, no jobs and resulting internal migration. More on this in my next blog.
Comment Government Response
These are the most difficult of times. But I must say the Government has provided a comprehensive and, for the most part, outstanding response. I applaud the breadth and speed with which they have moved, after they got going in March.
There is a lot of government support, and a lot you can do to get ahead of the curve on the post-lockdown economy. If you need help with anything discussed in this article, please contact us at GRA: [email protected], fill out our online form, or phone +64 9 522 7955.
Hi John, I just wanted to say a huge thank you for sitting down with me the other day to do the review. I learnt so much from this time with you and its really giving me some good things to consider with moving forward - Sam, October 2018
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