The way our attitudes and emotions play a role in how we invest and what we buy is of great interest to both psychologists and economists. Known as behavioural finance and behavioural economics, the theory is that investors and consumers don’t behave rationally.

Human foibles, bias, irrationality and inconsistency all affect our success as individual investors and the movement of markets as a whole. In one recent study, only 22% per cent of respondents were described as ‘rational’ when it came to money matters.

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Australia’s remarkable run of economic growth – 19 years – makes it a member of a very elite club. In fact, says CommSec Chief Economist Craig James, you’d be scratching your head to find any other countries that can lay claim to the same performance.

The current economic expansion began in the September quarter of 1991. The nineteenth year of the expansion was completed in the June quarter 2010 and the twentieth year of growth has begun with the Australian economy expanding by 0.2 per cent in the September quarter. While growth was only modest in the latest quarter, arguably Australia is still in the strongest position of any global advanced economy, says James.

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After years of interstate migration, suburbs including Parkwood, Arundel, Molendinar, Mermaid Waters and Clear Island Waters have now grown beyond their means.According to Gold Coast City Council documents, the pressure on infrastructure on available land space will drive people west into emerging suburbs

.Over the next 21 years, Molendinar will grow by a minuscule 98 new dwellings, with only 10ha available for new homes.The number of residents in Parkwood and Arundel will rise marginally from 19,108 to 20,541

.In comparison, Helensvale, Pimpama, Coomera and Varsity Lakes will take over as the region's new growth suburbs.Almost 700ha will be developed in the Pimpama-Coomera residential precinct, increasing the present number of dwellings from 2736 to 27,781 by 2031.Across the city, the number of dwellings will jump from 212,174 to almost 360,000.

Despite local residents claiming traffic and parking are already at peak capacity, both Surfers Paradise and Southport have been positioned by the council and state and federal governments to house thousands more residents.

The number of single and multi-dwellings in Surfers Paradise will increase to 35,594 to house a projected population of 38,705. The population of Southport will double to 51,115 residents, with high-rise developments expected to be built along the rapid transit route.

To accommodate the population boost, more than 12,000 new homes and units will need to be built on the Gold Coast by 2031.

In November, Prime Minister Kevin Rudd revealed his audacious plans to increase the population of the Gold Coast region to 1.2 million by 2050, up from the present population of 630,000

Mr Rudd has backed a ‘big Australia’ approach.

Through the southeast Queensland regional plan, the State Government has also backed dramatic population growth in suburbs that are positioned on the heavy rail line, including Varsity Lakes and Coomera.

At a local level, Mayor Ron Clarke has rejected calls to dramatically increase the population of the Gold Coast. Cr Clarke has said the lifestyle of Gold Coast residents should be preserved at all costs. City finance boss Cr Eddy Sarroff has pledged to include a raft of major ‘social infrastructure’ projects, including public pools, libraries and community centres, to service projected population growth across the city

via Gold Coast City heads for outer spaces Local Gold Coast News | goldcoast.com.au | Gold Coast, Queensland, Australia.

Speaking recently at Hope Island, Brisbane-based Michael Matusik said drastic measures need to be taken by local authorities to stimulate development to house the 16,700 new people a year calling the city home.

“The Gold Coast is currently undersupplied by 43 per cent when the number of dwelling starts for 2008/09 is matched with the projected underlying demand,” he said.

“Translated, this means 8500 new dwellings need to be built each year, or about 35 per working day, to cater for the city’s rapidly expanding population.

“As it stands now, on average only 550 new dwellings have been approved per month on the Gold Coast since July 2006 — a shortfall of almost 2000 (a year) when compared to what needs to be built.”

Mr Matusik said despite these ‘astonishing’ figures there was a flipside for investors.

“Demand, given the rapid decline in interest rates, is strong and will get stronger over the next six to 12 months, meanwhile supply is weak and will only get worse in the months ahead,” he said.

“The Gold Coast’s housing shortage is perpetuated by strong population growth and a lack of new developments as a result of the economic downturn and increased infrastructure charges.

“Astute investors are realising there is a golden opportunity in the market to pick up a bargain and position themselves to benefit from the Gold Coast’s housing shortage.”

Mr Matusik said buyers, including owner occupiers and investors, were seizing the opportunity created by the downturn and were snapping up existing stock, creating major benefits for the new projects currently in the market.

“The reality is that there are very few new property developments either under construction or ready to commence on the Gold Coast as a result of the economic downturn, this will create an environment for ongoing price growth,” he said.

“Developers who are forging ahead will be in a unique position when their product is released to the market as demand for dwellings will far exceed supply as confidence continues to return to the market.

“The projects which are either under way or in the planning stages are set to become the major beneficiaries of the Gold Coast’s supply shortage as they will be the only ones delivering new product to the market for some time.”

Mr Matusik said the city’s infrastructure charges had increased 90 per cent in the past five years.

The plan will govern how Australia’s fastest-growing region is managed from now to 2031. Mr Hinchliffe said the regional plan would also protect 85 per cent of southeast Queensland, including koala habitat, from urban development. He said the regional plan would encourage development away from the coast and towards a corridor west of Brisbane.

Brisbane and the Gold Coast are expected to take about a fifth of the new homes each, Ipswich 16 per cent, the Sunshine Coast 13 per cent, Moreton Bay 11 per cent and Logan nine per cent. “But we can’t have that across the whole of the region without breaking out and creating that sprawl that we don’t want to have, without damaging the 85 per cent of the southeast that’s being protected,” Mr Hinchliffe told reporters.

Australian Koala Foundation chief executive Deborah Tabart said koala habitat was still in great danger. “The 85 per cent sounds fabulous but it does not take in 85 per cent of the region’s high koala populations,” Ms Tabart said. “If they were saying 85 per cent of the koala coast then it’s good news.”

Property groups are calling for compensation, saying many owners stand to lose planned developments or part of their property. Urban Development Institute of Australia national executive director Brian Stewart said at least six developments in the Redland Bay area would be affected. “No one objects to the rights of the people of the Redlands to say we really want to preserve our koala populations,” Mr Stewart said. “If you have a piece of land and then all of a sudden you cannot develop a third or a half of it, immediately your profit margin goes down, the scale of the development goes down and you may not have a viable development on your hands which means job losses.”

The plan has identified areas within the urban footprint for high density living such as suburbs around the Northern Busway, Brisbane’s CBD, Milton, Albion, Woolloongabba, Bowen Hills, South Brisbane and West End. Further out, suburbs such as Chermside, Indooroopilly, Carindale and Upper Mt Gravatt will also become higher density. Mr Hinchliffe said the plan set an urban dwelling target of 15 homes per hectare but would protect the “great backyard” as a housing option. “That is a style of housing and a style of residential accommodation that people in southeast Queensland know very well,” he said.

The report also identifies job opportunities particularly in the growing science, medical and technology industries at Buranda, Coopers Plains, Eight Mile Plains, Southport and Toowoomba. Opposition Leader John-Paul Langbroek said it was vital that infrastructure was built to keep pace with population growth and housing was kept affordable. “That hasn’t happened so far,” Mr Langbroek said.

The region covers an area of 22,890 square kilometres, stretching 240km from Noosa in the north to the Queensland-NSW border in the south, and 160km west to Toowoomba.
http://au.news.yahoo.com/a/-/local/5756771/govt-reveals-plan-for-booming-se-qld/

I quote “Over the past 40 years we (on the Gold Coast) have had a regular seven year cycle regardless of interest rates and the state of the economy.” He commented that in the last boom of 2003 some prices increased by 100% in one year and he expects a recovery early next year with prices increasing by up to 30% on current values.

I often have dinner with Bill Morris at a local golf club ( a fun trivia night) and I was interested to hear that two of the areas he is forecasting huge growth in are ones where I own property. The main negative thought Bill passed on was regarding holiday let (often high rise) apartments as “they are discretionary purchases” often bought as holiday homes and are off loaded quickly when the economy turns sour.

Martin Bell

Property analyst Michael Matusik believes there is a large segment of the real-estate market who would prefer to live in a compact unit of 50 square metres or less.

>>> ‘McMansions’ on the outer – Property News @ Domain.com.au.

RESIDENTIAL property values on the Gold Coast are set to benefit from a booming population and strong demand for housing, according to research from PRDnationwide.

The research, compiled by Lynda Campbell of PRDnationwide’s Gold Coast office, shows the city needs 129 new dwellings a week to cope with the present population growth of 3.6 per cent — 2.1 per cent higher than Australia’s national growth rate.

Ms Campbell said while the actual population figure was down from previous years, this was a direct result of recent local government boundary reforms rather than a declining population.

“Population figures have dropped below 500,000, but when you consider that Beenleigh and its surrounds no longer form part of the Gold Coast, the population growth is still significantly high,” she said.

The report states that building approvals for houses and apartments on the Gold Coast have dropped dramatically in the 12 months to June, 2008.

“Building approvals aren’t keeping up with the residential demand resulting from the Gold Coast’s burgeoning population,”said Ms Campbell. “The last year has seen approval of 735 fewer houses and apartments across the region.

“Combined with current record low interest rates, this drop in supply and continual increase in demand should have a positive impact on property.”

>>> Gold Coast needs 129 new homes a week: report – Realestate News – Gold Coast, QLD, Australia.

In the current round of Web Seminars we are offering, I highlight four key factors that are a MUST… if you expect to draw any credible conclusions.

1.    Record Population Growth
2.    Investors Have Fled The Market
3.    Home Ownership Unattractive
4.    New Construction Has Stalled Badly

1. RECORD POPULATION GROWTH

Australia is currently experiencing the fastest population growth in 200 years. Our population is predicted to grow by 350,000 this year for the first time in over 200 years. That represents approximately the combined total population of Geelong, Cairns & Bunbury; or the whole of Canberra.

The 1850′s Gold Rush years, Post World War 1 (1919 onwards) and post World War 2 (1946 onwards) saw our 3 previous population explosions. Today we see a similar pattern emerging; i.e. rapid and prolonged growth, too few workers and pro-immigration government policies.

Record population growth means a significantly stronger demand for new housing! Given our record numbers of new migrants will generally rent for a season, demand for rental properties will continue to strengthen.

2. INVESTORS HAVE FLED THE MARKET

Rising interest rates in recent years have squeezed rental yields making property look unaffordable. Add to the mix a booming stock market (averaged over 20% per year between 2004 and 2007) and one can see why property has not been the preferred investment vehicle of recent years.

Since becoming familiar with the term “subprime”, seeing the global credit crisis unfold… and hearing of property values in the US & UK falling by 30 & 40%, many would-be-investors have opted to stay on “strike”. It’s fair to say that since the highs of mid 2004 only the ‘brave’ have continued to invest in property.

Investor demand accounts for about 50% of all new housing starts and about 70% of unit starts. Therefore, that investors have fled the market means significant negative impact on the supply of new housing and increased demand on existing rental accommodation.

3. HOME OWNERSHIP HAS BEEN UNATTRACTIVE

As with investors. the housing affordability barrier, rising interest rates (& general living costs) and of course the US initiated subprime crisis has left many would-be home owners lacking the confidence to purchase.

Scared, priced out of the market, unable to secure funding or unable to service a loan? regardless of the reason why new home ownership has been unattractive; the result has been that many renters in recent years have simply continued to rent. This has placed further pressure on existing rental housing stock

4. NEW CONSTRUCTION HAS STALLED BADLY

Since 2005 the absolute number of completed residential properties has fallen and they are forecast to continue falling in 2009. The US subprime crisis cemented this downward trend in demand for new properties. Add to that, in recent years we have seen the high profile bankruptcy of some large developers along with massive financial pressure on many smaller developers. The cost of finance has skyrocketed for developers… i.e. if they can find a lender who will back them. Understandably, developers are very nervous… many have simply shelved their new projects until such time as they see clear evidence that investors have returned to the market.

Developers going broke, developers shelving projects and/or developers unable to secure funding means new construction has stalled badly and as a result greatly reduced the supply of new property further adding to pressures on existing housing stocks.

DISSECTING THE EVIDENCE

• FACT: We are experiencing the greatest housing shortage in 200 years
• FACT: Because of the new Federal Government’s immigration policy, we are experiencing the strongest population growth in 200 years
• FACT: Since about mid 2004, broadly speaking investors have fled the market
• FACT: Since about mid 2004, broadly speaking home ownership has remained unattractive and renters have continued renting
• FACT: Since about mid 2004 the construction of new dwellings has stalled badly
• FACT: In mid 2004, national rental vacancy levels were about 3.5%. This level is considered a balanced market. Rental vacancy levels have dropped to below 1.5% now and are expected to continue to drop to historical lows of between 0.5% and 1% in 2009. These levels represent a stressed market
• FACT: When the demand for rental housing grows at a faster pace than supply, increased demand can be offset by diminishing vacancy levels
• FACT: When vacancy levels reach just 1% it is said that we have NO VACANCY, as the 1% represents the few days between tenants moving and carpets being cleaned etc… prior to a new tenant moving in
• FACT: Therefore, once vacancy levels fall to 1%… there is no room left to offset increasing demand by diminishing vacancy levels
• FACT: When demand increases and supply decreases and vacancy levels are already stressed; i.e. no vacancy… market forces mean rents have to go up… and significantly where population growth is significant
• FACT: Interest rates are the lowest they have been in years and are expected to reach (near) record lows by mid 2009

Now you have the FACTS, rather than simply “opinions”; may I suggest you draw your own conclusions as to what might happen with Australian property in mid to late 2009?

• With the cost of renting about to soar and the cost of ownership dropping significantly (i.e. rental incomes up and interest charges down), what do you expect the market will do?
• With stock market volatility and uncertainty and interest earned on cash deposited dropping away, what do you expect the market will do?
• With serious increases to the first home owners grant, what do you expect this group to do?
• Given rental properties vacated by first home owners will not produce a glut… because vacancy levels are at an all time low (stressed market) and the population is growing by the size of Canberra each year, what do you think the market will do?

Can I go out on a limb and tell you what I think; I may be wrong, but I don’t think I am?

1. I expect rents to soar in 2009
2. I expect interest rates to continue to drop next month and in 2009
3. I expect confidence to come back to the market, drawing back owners and renters alike
4. Given there is a lag of a few years from when developers decide to build again and new stock being ready to live in… I see no relief for the poor tenant for at least a few years
5. I also believe that the combination of all that I have just outlined will result in the next property price surge

So, in summary…

Those who have been building a property portfolio as their preferred vehicle for funding their retirements (NB: assuming they bought the right residential property in the right areas) are soon going to experience the property investors trifecta:

1. Rising incomes (rents)
2. Falling costs (interest)
3. Increasing equity (values)

I would love to address the subject “We are not the USA” and compare the FACTS relating to how we are different and why what happened there will not happen here; but I will save that for another day.

May I invite you to register your interest for either our next FREE Web Seminar this Wednesday evening… or if you let us know what other time(s) best work for you, we will run them according to demand CLICK HERE.

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

Coincidentally I was speaking with a 50 year old mrd client yesterday. She commented that at the time the superannuation guarantee legislation came about that she felt it would be of little benefit to her; having come into the super system too late. This was in fact her reason for starting her journey as a property investor; i.e. she could see little else that would offer a comfortable retirement at 65 years.

The article in the Gold Coast Bulletin says that the Australian Association of Super Funds identify that an average couple need $48,000 a year to live comfortably in retirement; or $26,000 annually to have a chance of living “modestly”. I have no idea how a couple could exist on $26,000 pa; given average 2006 superannuation payouts were just a total of $130,000 for men and $45,000 for women. The numbers simply didn’t work back then; how much less now since the values of our funds have been freefalling?

I stopped working conventionally 2 years ago at the age of 56; and am now involved with Nick & the mrd team part time – and by choice! Why? Because I believe in what he’s doing. I have seen his strategy work for me and I love seeing the penny drop for others (a number of readers of this blog would have spoken with me).

It was 1999 when I started out as a property investor. I refer to my (then) situation as “very average” but now have 13 properties and sufficient equity across our portfolio to fund our “retirement”. You have no idea how I feel about not having to get up and go to work (not that I’m some sluggard who stays in bed all day, but I do have the choice to be – if my wife Marion would let me!).

Today, work is carrying out activities that I really enjoy. If I make a few dollars along the way it’s a bonus! My health is generally pretty good, although I suffer from a couple of degenerative discs (L4 & L5). The idea of having to clock in at a 9-5 office job is frightening; I simply could not imagine having to do this ever again. Worse still at a job that would have me on my feet all day. I do feel very lucky as I look around me at others my age but “luck” really has little to do with our situation. You have to make the decision to do something for yourself NOW and have the guts (for want of a better word) to carry it through; especially when economic circumstances seem to paralyse us. It’s all too easy to go through a busy life thinking you can look at a retirement solution later. Later is now and it could be too late!

If you need motivating I am happy for you to speak with me. I’ll describe the feeling of owning your time and having the freedom to do the things you want to do; rather than having to do something just to “keep your head above water” and “put bread on the table”. Maybe in these economically uncertain times you would like to talk through issues, anxieties or concerns; with no strings attached – that’s ok too! Feel free to email me – martin@investmentmentor.com.au.

Have a nice weekend,

Martin Bell