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Asian Century

Big Picture For Property Is ‘Red & White’

Asian Century: Big Picture For Property Is ‘Red & White’
September 13, 2012 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

With property acquisition and disposal costs being what they are, investing in property needs to be undertaken with a mid-long term focus. So, with large-scale urbanisation unfolding across many Asian countries, it is essential for a property analyst to look at how the resultant structural changes to world economies might impact Australian property markets over the mid-long term too.

The rise and rise of Asia has kept me keenly interested over the past few years. Asia’s urbanisation and rising middle class are generating demand for natural resources and presenting economic opportunities on a scale not seen since the Industrial Revolution. Where Australia sits as these globally significant megatrends play out is the subject of the federal government’s White Paper, Australia in the Asian Century, due out within weeks. We expect the White Paper will outline opportunities and possible roles for Australia in what is known as the ‘Asian Century’—the current 100-year period in which great economic, political and strategic change in Asia (encompassing China, India, the key ASEAN countries, Japan and the Republic of Korea) is underway. (Although given we’re a good 12 years in and we haven’t yet seen, let alone begun planning and implementing, the contents of this White Paper, it’s fortunate for the federal government that it is a century of opportunity or we’d be missing the boat entirely.)

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You need to be a visionary to invest for maximum potential. Documents such as this White Paper interest me. Government policy changes and business decisions will have an impact on industry sectors, employment opportunities, and demand for that essential commodity we property investors love: accommodation. This White Paper will outline opportunities resulting from stronger ties with the Red Dragon (China) and other emerging countries, such as India, South Korea and Vietnam. So you could say, the opportunity is in the ‘red’ and the detail is in the ‘white’. Bring it on!

Asia is on a mission to replace the simple lifestyles of its villages with the creature comforts of modern cities, which the Western world has taken for granted for generations. As this evolves, dozens of new cities the size of our own capitals will be built.

Asia’s middle class is forecast to grow from 0.5 billion (in 2009) to 1.5 billion by 2020. To put this in to perspective, Australia’s total population is 0.02 billion.

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The opportunities for Australia should already be obvious. Australia has what Asia wants: energy resources, commodities for construction and manufacturing, agricultural products, education facilities, and quality tourism locations.

But it’s not just one-way traffic. Asia has something Australia is short on: capital. With federal and state budgets increasingly under pressure and funding difficult to secure generally, there is scope for Australian-based private investors to partner with Asian companies to secure the funds they need to get major infrastructure projects off the ground, thus creating enormous economic and employment opportunities and improving facilities, which would otherwise have taken decades.

Wherever there is demand for more jobs in the future there will be demand for more accommodation!

Let’s hope that Australia’s foreign investment policy responsibly encourages joint ventures. Fifty per cent of something is much more than 100% of nothing!

If all levels of Australian governments are smart, they will use this once-in-a-lifetime opportunity to score two wins: decentralise our population away from the capital cities where there’s an unsustainably high concentration of people, and add economic diversity to specific regional communities.

With some lateral thinking and an eye for the future, governments could create unprecedented opportunities out of the Asian Century. Here’s the chance to take the focus away from capital cities and to work with the strengths of many regional locations. Just a few examples:

  • Asia’s rising middle class is seeking quality education facilities. Strong regional locations such as Orange (Charles Sturt University and specialist medical facilities), Townsville (James Cook University and the CSIRO facility), and Launceston (University of Tasmania) have potential to become a future breeding ground for Asian professionals. The same could be said for Perth’s expanding Murdoch medical precinct. Adelaide might also consider jumping on board and investing in facilities to support Asia’s future demand for higher education. Hobart is already affectionately known as a ‘university city’.
  • Vast areas of dust bowl land from the Pilbara to Cape York could be irrigated to produce thriving agricultural crops to serve as Asia’s future ‘food bowl’. In return, Asian capital could help fund strategically-positioned communities that could provide goods and services to support thousands of new jobs in these precincts.
  • Cairns and the Gold Coast have opportunities to capitalise on their already wonderful tourism assets plus benefit from adding an alternative string to their economic bow.
  • Geraldton would do well to explore investment in hotel accommodation and to promote its pristine beaches and Abrolhos coral islands to tap into the Asian tourism market. And a Chinese partnership could secure the venture capital necessary to fund the proposed Oakajee Port and rail infrastructure, enabling several inland iron ore mines to deliver their product to the Asian market and creating tens of thousands of jobs.
  • Inland New South Wales (Tamworth and Dubbo), Bunbury in Western Australia, and northern Australia in general have opportunities to beef up its cattle industry (excuse the pun) for a protein-craving Asian market.
  • The natural beauties of Darwin and Broome could be boosted by investment in better facilities, which would also make these areas strong attractions to the Asian tourism market.
  • Tasmania’s agriculture and food manufacturing industries have an abundance of opportunities in dairy, salmon, alcoholic beverages, and vegetables.
  • The Riverina region in New South Wales (places like Wagga Wagga, Griffith and Leeton) is amongst the richest agricultural land  in Australia with reasonable logistics infrastructure already place to get the raw product from farm to the market place.

But, if Australia is going to prosper from the urbanisation of the world’s largest population and fastest growing economy, a bit of elbow grease will be needed. We’ll have to strive to understand Asian culture and how these countries do business, and overcome any language barriers. We’ll need to overhaul our school curriculum, our foreign investment policy, and our immigration policy for (specific) skilled labour and Asian students.

Dare we hope the long-awaited White Paper will cement the path ahead with its recommendations? I’ve read dozens of government planning documents over the years and I expect the Australia in the Asian Century White Paper to be much the same as the rest. It’ll use the words ‘plan’ and ‘projected’ a lot. There’ll be plenty of media hype, delegated responsibility, and money spent on feasibilities. Property spruikers will see it and other related reports as an extra sales tool. Selectively chosen comments will be lifted from the White Paper and recited as if the outcome is guaranteed.

Oh, and one last thing. The author of this long-awaited white paper is former Treasury Secretary, Dr Ken Henry. Yes, the same man who the same government commissioned to prepare a different report that was designed to give Australia’s inefficient tax system a complete overhaul. The same report that has mostly blank spaces in the ‘implemented’ column alongside its 138 recommendations. Perhaps that’s why they call it a ‘white paper’?

Let’s hope for a very different outcome with this next one!

One things for sure though, while I’ll always be an active observer of government initiatives in this space, I won’t be waiting around for government action in order to capitalise on exciting property investment opportunities.