It constantly amazes me how readily some people will jump to pessimistic conclusions after reading 1 or 2 negative metrics from a 30-60 day period when there’s dozens of big-picture positive things that collectively paint a very bright picture.
If you believed the headlines of late, then Australian property is so woeful it could be mistaken for the Christmas Grinch!
In fact, a recent headline was “Australia’s Housing Market Records Weakest Growth Since The GFC”.
There is no doubt that the uninitiated will read that and decide to limit their spending over the holidays because they’re worried about the sky falling.
Yes, the downturn in Sydney and Melbourne is real, but 15 million Australians live elsewhere. And, unless your property purchase in Sydney and Melbourne was within the last year or so, the value of your asset has performed well overall.
The truth of the matter is that the underlying fundamentals of Australian property today haven’t been better for more than a decade.
Ditto, the Australian economy as a whole, which is in good health according to the big-wigs. Reserve Bank of Australia Governor, Philip Lowe, reminded us of that with this quote in a speech just last month:
“…On many accounts, the Australian economy has performed very well over recent times. Over the past year it has grown by close to 3½ per cent, inflation has been low and stable at around 2 per cent, employment has grown quite strongly, and we are getting closer to full employment. Business conditions are positive and government finances have improved and are in reasonable shape. There is a lot of investment in infrastructure taking place and the number of job vacancies is at a record high. So, overall, it is quite a positive picture.”
So, as we wind down from a year that had plenty of people suggesting property was a doomed asset class, here are 27 positive things. I have to say them because it seems no one else wants to:
1) Investment home loan interest rates are currently sitting at circa 4 per cent and are expected to remain very low for several years to come. Indeed, most economists don’t anticipate a rate rise of any kind until (at least) sometime in 2020 and there’s increasing chances that rates might actually get cut next year. So this is great news for the biggest line item of an investor’s annual budget!
2) Residential vacancy rates in a majority of Australian locations tightened considerably during 2018, especially so in many locations outside of the capital cities where Propertyology is expecting rents to rise. The locations across Australia with the best market outlook right now also offer rental yields of circa 5 per cent so, depending on one’s own gearing levels, the annual impact on an investor’s household budget ranges from a small loss of $5,000 to a cash flow profit of $2,000. Here’s proof!
3) 75% of Australia hasn’t seen a growth cycle for 5 to 10 years. Evidence was produced during 2018 that properties in large parts of regional Australia and some capital cities are selling quicker and the volume of properties for sale are reducing – these two metrics equate to pressure on prices intensifying. Property markets are primed for growth.
4) Aside from Sydney and Melbourne, housing supply is balanced (and in some cases quite tight) across most of Australia. In fact, property developers are finding it difficult to fund major projects, so we anticipate housing supply to significantly tighten over the next couple of years. That’s an important ingredient for price growth.
5) World economies are strengthening and are actually in the best shape they’ve been in since the GFC started way back in 2008. That’s great for Australia being a small fish in a big pond!
6) The world’s largest economy, the US, recently reported record GDP and a 4% unemployment rate. Every nation likes to see that!
7) The number of jobs in Australia is growing at a cracking pace with 664,810 created in the two years to September 2018. More jobs mean more confidence and greater capacity for more people to transact in property. We’ve already seen it in Hobart and it’s now unfolding in many locations outside of capital cities.
8) Our national unemployment rate has been consistently trending downwards and is now at 5.1 per cent – the lowest in six years and a percentage that is generally referred to as ‘full employment’.
9) I know I’ve talked a lot of about this next point, but that is because it is so important! We are finally seeing signs of the long-awaited wage growth popping its head up [refer green line in above chart]. The wage index moved up to 2.3 per cent over the year ending September, the highest level in 3.5 years, and the RBA is optimistic of this trend continuing. Throughout Australian history, the most prosperous years for property price growth had strong wage growth.
10) There have been a number of free trade agreementssigned with several countries over the last few years and now we are starting to see the first signs of economic results from businesses starting to capitalise on this enormous opportunity. Jobs, jobs, jobs!
11) The Trans Pacific Partnership was signed this year in October with a commencement date of January 2019. The forecast from this one agreement is $15.6 billion annual benefits by 2030. That doesn’t sound like gloom to me!
12) The Australian dollar is expected to remain below USD$0.80 for the foreseeable future, which is very encouraging for Australian export businesses and their potential to create more jobs to keep pace with rising demand.
13) Our agriculture production has increased by a gross value of 30% over the four years ending June 2018. That’s not just jobs on the farm, but also in freight logistics and food manufacturing. Australia is Asia’s food bowl!
14) The manufacturing sector added 85,000 additional jobs over the last year, with the bulk of these coming through food and beverage manufacturing (now employing 246,000 people within the sector). Food really is the ‘new black’ of the economy if you ask me.
15) People still love coming to our shores, especially when our dollar is at a more reasonable level compared to the US. Indeed, international visitors to Australia spent $42.5 billion in the year to June 2018 – that’s a lot of sunscreen!
16) The mining sector is sexy again. ABS data confirms that jobs in Australia’s mining sector increased by 13 per cent over the year. There are also an increasing number of new projects coming through the system that will provide a significant boost to economies in parts of Qld, WA, NSW, SA and Tasmania.
17) The infrastructure boom that is happening across the country includes a
18) First Sydney and Melbourne, then Byron Bay and Hobart, and now large parts of regional Australia – we are cashing in on a world-world tourism boom. But we aint seen nothing yet, folks! There’s a massive pipeline of more than 200 new tourism-related projects worth a staggering $44 billion. The resultant improvement in local economies directly creates increased demand for housing.
19) International student exports generated $34 billion for the Australian economy over the year ending September (up 17 per cent) – in fact, education is now one of the top three exports in the country. These universities aren’t just in Sydney and Melbourne!
20) During 2018, contracts started to be awarded to big manufacturing businesses across Australia for the Federal Government’s 10-year $290 billion Defence fleet upgrade. Many more contracts will be issued over the next few years with the spending love spread across multiple locations. Again, lots of jobs!
21) Australia’s pipeline of transport-related infrastructure projects (state and federal) is as big as it has been for some years with game-changing projects under way in nearly every capital city. Watch this space, because our cities are about to skyrocket into the future!
22) Our national population will continue to grow by 300,000 to 400,000 each and every year. Of course, that means lots of extra demand for housing at a time when supply is coming off the boil across the land.
23) According to the RBA, economic growth in 2019 and 2020 is set to be Australia’s highest since the 2006-7 Howard era with the unemployment rate to continue to fall to circa 4.75%, which will be the lowest in more than a decade.
24) If that’s not enough to turn that frown upside down, ABS data confirms that over the two years ending September 2018, an additional 200,320 jobs were created in locations other than the eight capital cities. Things are good out there, people – if only you looked further than two overcooked capital cities!
25) The small business tax cuts announced in H2 2018 will start to produce increased business investment, expansion and jobs growth.
26) For the first time in more than a decade, the federal budget will head in to surplus at some point in 2019. That’s a major achievement and it means that the nation has a very solid platform to grow from.
27) Of the 180 individual towns and cities that each have a population of 10,000 people or more, property markets in more than 50 per cent of them are producing price growth. The median house price a lot of them is $250,000 to $450,000. Opportunities galore!
As the world’s smartest investor, Warren Buffett, says: “The time to be fearful is when everyone else is brave and the time to be brave is when everyone else is fearful.”
Guess what, that time is now!
Think about it – those who made the most money out of Sydney, and now Hobart’s boom, purchased one to two years before their respective growth cycles commenced.
There are an enormous number of choices for motivated property investors to objectively assess the fundamentals of.
So, don’t be one of the millions of sheep who are being herded into a pen because of irrational fear. There’s lots of paddocks out there with lush green grass and very few sheep grazing in them [refer here].
Now is the hour to be the black sheep. Propertyology would love to be that shepherd who helps to point you in the right direction
Propertyology is a Brisbane-based buyers agency and (national) property market research firm. Our multiple-award-winning business is currently helping everyday people to invest six locations across four different states. Like to know more? Contact us here.