What will happen to ASX shares if Australian house prices do actually fall 30% like some economists are predicting.

A lot is being made of the Commonwealth Bank of Australia (ASX: CBA) predicted scenario where house prices may fall 30% due to the coronavirus. But that’s just one potential scenario. CBA isn’t saying house prices will fall 30%, it isn’t the most likely outcome – just a worst-case one.

How far do banks think property will fall?

However, all of the big four ASX banks are now predicting that house prices are probably going to fall by more than 10%. Anecdotal evidence suggests that in some areas house prices have already dropped 10%, it just isn’t reflected in the statistics yet.

Obviously if house prices were to drop it would be bad news for a wide variety of ASX shares. For starters, I think CBA, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) would all suffer.

I believe the regional lenders would also suffer. The pain may be smaller in dollar terms, but don’t forget their loan books are smaller too. In percentage terms it could be just as bad, if not worse. I’d watch for the effects on Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

If house prices dropped 30% then that could cause higher bank bad debts due to negative equity.

I think it could also be bad for property businesses that are somewhat reliant on a robust property market. Think of shares like REA Group Limited (ASX: REA), Domain Holdings Australia Ltd (ASX: DHG), CSR Limited (ASX: CSR), Beacon Lighting Group Ltd (ASX: BLX) and Nick Scali Limited (ASX: NCK). Share prices would probably fall.

The negative effect could be a noticeable negative for many areas of the economy like we saw during the first half of 2019. And think of all of the taxes generated by property values for various areas of government – stamp duty, council rates and so on.

Falling house prices may be good for one group of people, avocado eaters may finally be able to afford a house.

Do I think house prices will fall 30%?

Australia’s economy is quite reliant on property. Would property buyers really let Aussie house prices fall that far? Maybe everyone would jump in at a 20% reduction. Interest rates are now incredibly low which makes it easier to afford a property.

I certainly expect property will fall over 10% (some property buyers say they already have in parts). But I think a 30% won’t happen because of the Aussie love for property and how much support there is and will be for property prices.

More reading

• ASX 200 down 0.9%: Xero posts strong growth & Australian economy loses 594,300 jobs
• Why Beach, CBA, Qantas, & Xero shares are dropping lower
• Is the CBA share price a buy?
• Negative interest rates coming? Here’s what it would mean for ASX shares
• ASX 200 up 0.35%, CBA gives Q3 update

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post What happens to ASX shares if Australian house prices do fall 30%? appeared first on Motley Fool Australia.

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The Queensland state government’s announcement of the potential nationalisation of Virgin Australia Holdings Ltd (ASX: VAH) is undoubtedly a value-destroying move, in my view. Airlines are capital-intensive companies. They have good margins, but not great. Attaching a company like that to the state finances appears, prima facie, as a recipe for disaster.

At time of writing, Virgin owes $2.28 billion to secured lenders and secured leaseholders, $1.98 billion to unsecured bondholders, $1.88 billion to aircraft lessors and $451 million in entitlements to around 9,000 workers. In total, almost $7 billion to over 12,000 parties. 

In any debt restructuring and bailout, creditors can exert some influence. However, all bidders will be looking to reduce payments to debt holders – a situation the state government would find difficult. 

This is particularly as Queensland would be doing so for its own state interest. While this is fair enough, I believe it adds little value to the remainder of the airline’s national customers, aside from placing their interests always second. The irreplaceable value of Virgin to the Queensland economy has been overblown. As has the need for government intervention.

Alternatives to nationalisation

Outside of nationalisation, a range of potential bidders has come to light. Among them is Andrew Forrest, a man whose determination has already launched 2 multi-billion dollar enterprises in Western Australia. 

Deloitte, Virgin’s lead administrator, previously stated that 8 bidders were already confirmed, with negotiations continuing with a further 12 potential bidders. Some of these allegedly include Wesfarmers Ltd (ASX: WES), American airline investor Indigo Partners, Richard Branson and private equity firm BGH Capital.

Indicative bids for the airline are due by tomorrow, 15 May. Final bids are expected in June with Deloitte confident of completing the sales process by the end of June.

Capitalism works

Within Queensland, there are regional airlines like Alliance Aviation Services Ltd (ASX: AQZ) or even Regional Express Holdings Ltd (ASX: REX). These airlines already carry a lot of the load of intra-state and regional air traffic. Not only in Queensland but also in my own state of Western Australia. The vacancy remains at the interstate level. 

Of these 2 airlines, I am particularly fond of Alliance. This company is the nation’s unheralded workhorse, ferrying many workers to and from resource projects. It has recently won a contract extension with South32 Ltd (ASX: S32) and has continued operations throughout the COVID-19 pandemic. All of its aircraft belong to the company, which prides itself in operating to world-class standards. 

Foolish takeaway

In my opinion, any attempt at nationalisation by the Queensland government into the Virgin Australia bidding process is likely to produce a large number of losers. These include the taxpayers of Queensland, customers of Virgin across the nation, small but robust airlines like Alliance, as well as those who are dedicating time and capital to winning the bidding process.

Many airlines across the world have government support. However, in Australia, I believe this is not necessary. Virgin Blue demonstrated that.

More reading

• Why Beach, CBA, Qantas, & Xero shares are dropping lower
• The Queensland government is aiming to buy a stake in Virgin Australia
• 5 things to watch on the ASX 200 on Thursday
• ABS reveals overseas travel arrivals plummeted a massive 99% in April
• ASX stock of the day: This ASX airline share jumped 45% today on expansion speculation

The post Losers of Virgin Australia’s potential nationalisation appeared first on Motley Fool Australia.

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I think having a little exposure to the small cap side of the market would be a very good thing for a portfolio.

You only need to look at how successful investing in the Afterpay Ltd (ASX: APT) IPO in 2016 would have been to see why.

And while very few small cap shares will be as successful as Afterpay, there are a number on the market that have the potential to follow in its footsteps.

Three small cap shares I think have enormous potential are listed below:

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a fast-growing provider of enterprise mobility software. The company’s software allows sales and service organisations to increase their sales win rates, reduce expenditures, and improve customer satisfaction. This is achieved through improved mobile worker productivity. It counts a wide range of blue chips as customers and continues to grow during the pandemic. Bigtincan recently reaffirmed that it is on course to achieve organic revenue growth in the range of 30% to 40% in FY 2020.

Serko Ltd (ASX: SKO)

Serko is a technology company focused on innovative solutions that address the challenges of corporate travel and expense management. It was growing at a very strong rate over the last fews years thanks to the increasing popularity of its Zeno product. And while its performance looks likely to be negatively impacted by the coronavirus, I expect it to bounce back strongly once conditions ease.

Whispir (ASX: WSP)

Whispir is a software-as-a-service communications workflow platform provider. Its industry-leading software platform allows companies to deliver actionable two-way interactions at scale using automated multi-channel communication workflows. This helps make operations more efficient and can cut down the number of service desk support calls. It counts a number of big names as customers such as Disney and Foxtel.

More reading

• 3 top ASX shares to buy now and hold for 10 years
• If you invested $10,000 in the Afterpay IPO, this is how much you’d have now
• Is the Zip share price in the buy zone?
• Why Afterpay, Flight Centre, Mesoblast, & Sezzle shares are dropping lower
• Safe dividend stocks to buy today for the COVID-19 world

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia owns shares of and has recommended BIGTINCAN FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Serko Ltd and Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Could these small cap ASX shares be the next Afterpay? appeared first on Motley Fool Australia.

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