Times Have Changed

The very engine room of Australia has changed. Our economy was built off the back of our farming and manufacturing sectors but the mining industry will do the heavy lifting into the future. Structural change in an economy impacts the lives of its citizens and those who adapt prosper… while those who resist (or even stay the same) are the ones left behind.

Property investors in these unique times ought to be making some change but never lose sight of some basic fundamentals. Let me break down the complex to the very simply by saying it was supply and demand that determined the value of something yesterday and it will be supply and demand that determines the worth of that same thing tomorrow.

When I was a kid in the 1970s we went through the usual fads. Remember the chopper bikes (I never had one of those), Bahne ‘superflex’ skateboards and of course the yoyo would come in and out of vogue every few years?

Investing into property with strong demand is wise… but only where there is some certainty that demand will remain high.

Positive Geared Property

Finding positively geared property in areas of strong and continual capital growth is rare (that said, we have secured a number of them now). As with the yoyo or fibreglass skateboard… what’s in demand today may not be in demand tomorrow. When mines close some places become ‘ghost towns’.

Mining Towns vs. Muscle Towns

There are mining towns and there are muscle towns and understanding the difference is essential. My wife, Katrina, summed this up last week better than I could… so I will simply quote something of what she said…

The current resources boom is the “perfect storm” for property investors! Huge infrastructure spending, large employment base, growing populations and high income residents create demand for housing and opportunity to “Exploit The Boom Towns”.

However it can be a risky and potentially perilous decision if you don’t follow some very simple but important fundamentals in your due diligence.

There are many mining towns that exist in a bubble which can burst if demand for their particular resource drops, or the local mine closes, or housing demand falls away after construction of the major project is completed… read “Exploit The Boom Towns”.

We are really excited to have secured a number of cash flow positive investment property opportunities that tick all the boxes. That is… property that will put (significant) dollars into your pocket and remain true to the core principle of mrd – sustainable long-term capital growth!

• If you are looking for an investment property that is located for good capital growth without costing you anything to hold it then I recommend you talk to us >>>here.
• I have decided to confront the misinformation from so-called ‘experts’ and present the facts. Claims that Australia’s property market will follow Japan and the USA are wrong. Listen to my very short video >>>here
• Everything starts with where you are now. At no cost to you mrd will assess your current position and make responsible suggestions about what may be possible moving forward. Of course, before any plan forward is possible the first step is to determine your starting point. Please help us to help you by completing this >>>here

Happy Investing,

Nick Lockhart
Our Customer Care Program works for you… because investing is personal!

A Walk Down Memory Lane

Let’s cast our memories back in time to March 2009 when Harry prophesied that “within 6 months our economy would be down the same dark hole that the US economy had plunged into”. Courier Mail March 02 2009

Dent was obviously wrong then and the Australian economy remains one of the strongest in the developed world.

In February 2009 a mutual fund known as the AIM Dent Demographic Trends Fund once had $2 billion in assets. It was merged into another, now extinct, mutual fund when only 20% of the assets were left. Dent claimed the poor performance was due to the fund not taking all of his advice.

In 2006 Harry Dent forecast the Dow hitting 40,000 by the end of the decade, the NASDAQ advancing at least ten times from its October 2001 lows to around 13,500, and potentially as high as 20,000 by 2009. The great boom resurging into its final and strongest stage in 2007, and even more fully in 2008, lasting until late 2009 to early 2010.

Boy was that wrong! The Dow’s now around 11,000, not 40,000, the NASDAQ is under 2,500, not over 13,500.

No Real Estate Tsunami

A recent panel of Australians, Craig James senior economist from ComSec, Michael Pascoe and others did not agree with Harry’s “real estate tsunami” predictions for Australia.

Listen to Craig and Michael here

Comparing Australia With Japan

Comparing us to Japan is ridiculous and far-fetched! Since 2005 Japan has been losing population year after year. Current estimates suggest their population will be 21% less in 2050 from its 2005 levels! That is, the 127.8 million people in 2005 will contract to just 100.6 million by 2050.

That’s almost 28 million people who no longer need a roof over their heads! This has naturally caused a drop in house prices in Japan. Demand cannot disappear without creating an excess in supply.

Exactly the same happened in the USA in the lead up to the GFC. A chronic oversupply of homes pushed up rental vacancy rates. In many cities up to 10% and in Tucson Arizona 15.9% at one stage! A surplus of supply with limited demand was the experience of the Japanese and American economies and as I say over and over… market forces will always prevail in the end!

On March 2nd 2011, About.com published an interesting article. It began with…

The latest data from the Population Reference Bureau shows that there are twenty countries in the world with negative or zero natural population growth. This is unprecedented in history! You can read this entire article >>>here

NB: In the case of Japan it was demand diminishing… whereas in America it was massive oversupply. Different reasons but both threw the market’s equilibrium in the direction that meant prices had to fall!

Australia

Vacancy rates are the best indication of the supply/demand ratio. Australia’s residential property vacancy rates run around 2-3%… and our population growth rates remain among the highest in the developed world. NB: In percentage terms our population is growing faster than that of China’s.

A recent report from the Housing Industry of Australia says “HIA estimates that Australia will require in the order of 1.6 million homes over the nine years to 2020, but if we build at the average rate of the last 20 years many areas of the country will have a critical housing shortage by 2020. Under such a scenario the cumulative national shortage could approach 500,900 dwellings.” You can read that entire article >>>here

Ultimate Charlatan Award

Harry Dent’s predictions for the US stock market earned him the “Ultimate Charlatan Award” from the financial reporting site maxfunds.com. They gave him this award as part of their 2008 “Eight Annual Mutual Fund Turkey Awards” saying that “the very worst of investing advice usually arrives near the top and bottom of stock market cycles.”

No one has a ‘crystal ball’ as to what markets will do… we just have the evidence of past performances (history). In time we will all be ‘wise in hindsight’ but in the mean time my very strong recommendation is that you do not take advice from sensational media reports or so call ‘experts’ such as Harry Dent peddling his latest book. Be very mindful of the following:

• Dent (and others like him) have made many erroneous predictions previously
• Don’t discount the lessons of history and market forces
• Common sense and logic (not sensationalism, fear and emotion) are the ingredients you need for success
• Opportunities abound
• You have to do something… or accept you are pension-bound

To discuss your goals, current concerns and/or opportunities:

• Call mrd on (07) 5580 8888 or
• Tell us what’s on your mind >>>here

In recent weeks I have shared how I was overpaying interest on three of my investment loans. Since then Heather has been swamped with enquiries from clients wanting her to check the rates they are paying. From this exercise it is apparent that the number of home owners and investors paying over the top is a lot higher than first thought. She has also come across many examples of people with the wrong finance structure and properties unnecessarily cross collaterolised with others!

To have Heather look at your situation:

• Please send her a request >>>here and
• Complete a ‘My Starting Point’ form >>>here - this will give Heather an accurate picture of your current position

Happy Investing,

Nick Lockhart
Our Customer Care Program works for you… because investing is personal!

]]> http://investmentmentor.com.au/news-commentary/from-the-desk/end-of-the-world/feed/ 1 http://investmentmentor.com.au/news-commentary/in-the-news/why-its-essential-to-have-long-term-investment-views-2/ http://investmentmentor.com.au/news-commentary/in-the-news/why-its-essential-to-have-long-term-investment-views-2/#comments Sat, 07 May 2011 08:27:17 +0000 Admin @ mrd http://investmentmentor.com.au/?p=13461 Mark Armstrong | March 21, 2011

I’ve said it time and again that the residential property investment is a long-term proposition.  The property market takes about seven to 10 years to move through a full cycle – from low capital growth/high rental yield, to high growth/low yield and back again. Despite this, many property investors choose locations and property styles with little potential to survive and thrive throughout market fluctuations.

Some investors choose locations that lack the long-term underlying demand to drive capital growth, while others choose property styles that don’t reflect trends in the way people want to live. In other words, the property investment decisions that look good today may not prove so attractive in five, 10 or 20 years.  It’s essential to understand the nature of long-term economic and demographic trends, then select assets accordingly.

Interest rates rise and fall, but in the long term, dwindling oil reserves and rising petrol prices will be a key economic trend influencing the property market.  In the coming years, rising prices at the pump will make outer suburban living and commuting less feasible and less appealing. This will curtail the urban sprawl and increase demand among homebuyers for property in the middle suburbs close to public transport corridors, shops and schools. At the same time, rising property prices in the inner and middle suburbs will put home ownership beyond the reach of more Australians, or at the very least, delay it significantly.

Figures from the Bureau of Statistics tell us that the proportion of households renting from private landlords increased from 19 to 22 per cent in the 10 years to 2006 when the last census was completed. What’s more, the proportion of Australians aged 35 to 44 who were renting rose five percentage points over the same period, to sit at 32 per cent.  There’s every reason to expect that this trend will continue. Because many tenants want to maintain the trappings of an urban lifestyle, the trend away from home ownership will increase demand for rental properties within walking or short driving distance from trams, trains, shops, cafes and entertainment.  This will further boost capital growth prospects in the inner and middle suburbs.

Delaying having children is another trend set to influence the residential market well into the future. The median age for parents is growing, at 30.8 for women and 33.1 for men.  And women aged 40 to 44 said to have completed their families have an average of two children, compared with 2.8 in 1981. The shrinking family unit means that demand for low-maintenance, compact dwellings will rise, while demand for the conventional sprawling home on an outer suburban block will fall. When you look at all these trends in their entirety, it’s clear that pockets of the middle suburbs with large blocks on land close to public transport, shops and schools will provide feasible long-term opportunities for residential property investment, particularly for investors who have been priced out of the tightly held inner suburbs.

Mark Armstrong is an independent property analyst and adviser.

>>> Why it’s essential to have long-term investment views.

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.

read more.

First-home buyers have disappeared and the Reserve Bank has raised the cash rate six times since last October.

No wonder some in the housing finance space have long faces.

But is it as bad as the doomsayers are making out?

Let’s start with an examination of the underlying economy. Notwithstanding predictions of a double-dip recession, the IMF recently upgraded its forecast for global GDP growth to 4.6 per cent for this year and left next year’s forecast at 4.3 per cent.

A bi-annual survey of business economists last month found GDP growth of 3.5 per cent for this financial year (with a recent Treasury update at 3 per cent), only moderate further increases in official interest rates, inflation at the upper end of the RBA target rate but not worryingly so, unemployment continuing benign and rises in the equities markets to the end of the year.

Second, housing starts continue to lag population growth to a significant degree. A recent Macquarie Bank report cites 150,000 homes being built annually since 2005, but population growing at more than double this at 350,000. This equates to a 50 per cent increase in the rate of population growth but no change in new dwelling construction.

Macquarie’s conclusions are validated by ANZ Bank research, which shows that a cumulative 600,000 new homes are required to meet demand.

At the same time, rental vacancy rates across Australian capital cities continue to be less than 2 per cent with consequent upward pressure on rent levels.

The credit growth numbers produced monthly by the Reserve Bank show housing credit growing at an annual 8.6 per cent to May, and growing in May at 0.7 per cent compared with 0.6 per cent in April.

At this level, housing credit growth is well below the double- digit levels of the 2004-07 period, but not catastrophically low. The key observation from this data is the re-emergence of property investors, with significant growth over the year of 6.6 per cent, up from 3.6 per cent a year earlier.

This data is confirmed by the monthly ABS numbers on housing finance, which show finance for property investment growing at double the rate of owner-occupied finance. The ABS numbers also reveal an interesting phenomenon — while the number of finance approvals continues to decline, the rate of decline has slowed over recent months and the value of approvals actually increased in May by 0.7 per cent.

The ABS data also shines a light on first-home-buyer activity. The percentage of first-home buyers to total approvals increased in April to 16.3 per cent, although it dipped again to 16.1 per cent in May.

While this is still well below the mid to high 20 per cent levels experienced last year when the first-home-owners grant boost was in play, it is not materially below the long-term average of about 18 per cent.

Finally, it’s worth reviewing auction clearance rates. Recent data suggests a 60-70 per cent clearance rate in Sydney and Melbourne, although some weekly data may be weaker. While not stunning, it’s a lot better than the 20-30 per cent rates of 2008.

Rates at these levels are also likely to take steam out of house price increases that created concern for policymakers late last year and early this year.

The winter of our discontent in the housing finance market?

I don’t think so. The fundamentals still look sound and the medium- to longer-term perspective remains solid.

via Don’t believe it, there’s life in bricks and mortar | The Australian.

Colliers International’s Gold Coast project marketing director Brinton Keath said many people were seeking to downsize their home and mortgage.

Subsequently sales rates for sub-$600,000 properties, apartments in particular, were rising.

He said in many cases those selling a home did not want to move from the area so they were looking for a more affordable option such as an apartment.

“Our research shows that currently on the Gold Coast there are 1662 new apartments for sale, and of those there are only 170 two-bedroom apartments and 134 three-bedroom apartments priced under $600, 000,” he said.

“That gives us only 304 quality investment-style apartments across the entire city.”Colliers International predicts that the current level of available apartment stock under $600,000 will reach zero in 12 months given the take-up rate of the past year.

Mr Keath said that in the year to June 2010 there were 222 sales of such apartments in what was one of the worst periods for the city’s property market in years.

“The figures for the June quarter show that the total number of low and medium-rise apartments sold was 120 and in the same period last year this figure was 49,” he said.

“That is an increase of 144 per cent and, if anything, the momentum is only going to increase as mortgage rates move up which most economic forecasters say they will.

“All of a sudden low and medium-rise developments have come right into favour which goes against the established trend on the Coast for the past 20 years or more whereby high-rise apartments sales have always led the volumes of sales.”

Mr Keath said the majority of new apartments across the city was priced from $1 million.

via Medium-rise apartments selling on Coast Real Estate | goldcoast.com.au | Gold Coast, Queensland, Australia.

Author David Aubrey said reports of an apartment oversupply were misleading because they referred to units priced over $700,000.”This has been seized upon and portrayed as the entire Gold Coast new apartment market being in oversupply,” he said.”There is next to no new product available in the beachside suburbs priced below $600,000 and no major projects planned to be released in 2010/11 except for stage two at Pavilions Palm Beach, following a near sellout of its first stage.”This lack of supply shows no sign of abating in the medium term due to restrictive lending policies by banks and cautious approaches of the valuation industry and a general lender/valuer caucus of negativity.”The end of the sub $600,000 new investment unit is nigh.”The 2008 Market Findings report predicted a supply issue when 70 units were for sale in the sub $500,000 bracket across 32 projects. The latest report is based on 22 projects with 2114 units. The five remaining sub $600,000 apartments are within the first stage of Pavilions.Mr Aubrey said investors wanted new apartments due to their depreciation benefits and lower body corporate costs.

via Sub $600k units dwindle Real Estate | goldcoast.com.au | Gold Coast, Queensland, Australia.

A recent economic report by Canadian bank Scotiabank, said that Australia has just taken the reins from Canada – which shifted to second position – to boast the best housing recovery performance in the first quarter of 2010.

Aparently Australia has taken the lead in the global real estate market, posting the best recovery in residential house prices among 12 developed countries.

Scotia Economics senior economist Adrienne Warren said a solid economic recovery and strengthening labour markets were supporting rising home sales and prices, despite the RBA being the first, among major developed economies, to raise interest rates.

The report notes that in Australia, inflation-adjusted average home prices were up 17.1 per cent year-over-year in the first quarter – a sharp step-up from the prior quarter’s 11.4 per cent increase.

DEPPRO managing director Paul Bennion said it was good news for  property investors, particularly those who moved to expand their  portfolio now.

“House prices rose by 10% last year and are expected to rise by the  same amount again every year over the next decade,” he said.

“The global financial crisis has taken the wind out of the sails of  developers – they are just not building houses and units at the  same rates that we saw a decade ago.

“So the HIA’s prediction of a huge shortage by 2020 is likely to come  true because developers are unlikely to catch up with demand in  that time.”

Another March release of statistics – this time from the AFG Mortgage  Index – shows that property investors are already returning in force  in capital cities, where more than one-third of home loans were for  investment purposes during February.

The AFG figures show the proportion of loans to investors was 34.1%  of all mortgages for the month – a 7% increase from six months ago.

“These figures relate to AFG, which has 2100 member brokers  across the country and a loan book of almost $60 billion – about  10% of Australian mortgages – so they are a fairly good indicator of  the state of the industry and the mood of buyers and investors,” Mr  Bennion said.

“And while the recent interest rate rises have dented the ambitions of  some first home buyers, they are not as big a deterrent for investors  because these people understand that property investment is a  long-term strategy. People realise interest rates even out over time  – you win some years and lose others. The important thing is that  your capital and rental returns continue to increase.”
Mr Bennion said it was important for investors entering the market  or expanding their portfolio to make sure they capitalised on these  returns by claiming the maximum tax depreciations allowed by the
Australian Taxation Office.

“It’s important to get a professional depreciation report done for  each property, and on an annual basis,” he said. 

*Note – with every property purchased via mrd we supply a quantity surveyors report at no cost to the client – it is a very important document.
Autumn 2010  Deppro (Quantity Surveyors) Newsletter

Civic leaders say that based on the population projections, the Gold Coast will need an extra 8000 jobs every year to keep unemployment down and the city thriving.

The Business GC Economic Development Strategy 2010 has laid out a plan to create new jobs, highlighting how the Gold Coast was no longer considered just a holiday destination … it was now a robust economy internationally recognised as a highly desirable location and a premium city in which to live, work and visit.

“The Gold Coast is expected to become Australia’s fifth-largest city within the next 20 years … the rate of growth being experienced in SEQ suggests that the region is likely to surpass Melbourne as the second-largest metropolitan area in Australia after Sydney, within the next 50 years,” said the report.

Business GC boss John Witheriff said the sheer infrastructure required for the huge population growth would generate 70 per cent of the 8000 new jobs needed annually. He said house and infrastructure construction and supplying food and entertainment would create jobs easily.

Not so easily was the remaining 30 per cent, which would require proactive moves to attract business investment and exports like film, high-performance sport and environmental and knowledge-based industries.

Mr Witheriff said they were now working with schools and universities to produce a more skilled, knowledge-based workforce that would in turn lure big companies to set up here. The city has been split into 10 key precincts to group similar businesses in the one hub.

It includes Southport as a medical, education, business and technology centre, Surfers Paradise and Broadbeach for international tourism and business and Coolangatta as a medical, tourism and transport hub.

Growth spurt demands 8000 more jobs Local Gold Coast News | goldcoast.com.au | Gold Coast, Queensland, Australia.