Hi All,
My company just published our market comentary for this month’s demand review. We’re in building products so look to the property indices as lead indicators of demand for our product.
Thought you might be interested in a small exerpt of BIS Shrapnel’s long term view on the market. Just one comentators view, but still an interesting read and another piece of info to add to your melting pot…
Australia’s economic upswing is regaining momentum quickly. In spite of a cooling-off in housing markets, overall growth is continuing to broaden and strengthen. BIS says that the main problem for Australia over the next few years will be coping with continued strong growth in a situation of increasingly critical shortages of productive capacity and skilled labour.
BIS Shrapnel says non-residential rather than residential construction that leads the way from here. Housing markets have cooled off and although BIS Shrapnel believes they do not face an imminent collapse, there is little prospect of further strong rises in activity over the short-term. A major office construction cycle waiting in the wings (office markets face a critical shortage of supply over medium term).They predict the re-emergence of inflationary pressure mid-decade. A demand-driven surge in wage and price inflation will force the RBA into a more aggressive round of interest rate rises from 2006. BIS argues that the RBA will face a more challenging environment over the next three years that will force it to raise rates by another 2 to 3 per cent.
BIS Shrapnel warns that this cycle will eventually culminate in a sharp investment bust in 2007, sending the economy into a sharp downturn in 2008.
Long term underlying demand is still being forecast over 160,000 commencements –
2004-2009 164,000
2010-2014 166,000
2015-2019 168,000I’ve got all the graphs and stuff and the whole 100+ pages of the report, but thought I wouldn’t get in to too much trouble if I published this little exerpt of our summary FYI.
Please do not reproduce, just for your consumption.
Cheers,
Michael.MMmmm….
A bust in 2008… I don’t think so, mainly because of the baby boomers. Right then they will be earning quite a high income so why would they sell their properties? Yes negative gearing hurts, but does it matter if you can afford it?
There probably will be some sell off from ‘don’t wanters’ – owners who couldn’t be landlords and people with too high a debt level, but in my opinon that will be about it.
So I disagree with the 2008 property slump, rather I believe it will flatline for quite a while, perhaps have another run (perhaps), and then plumet (when the baby boomers retire).
Of course it’s all cyrstal ball gazing… Something I not a professional in
.Rgds.
Lucifer_auSome baby boomers are preparing for retirement and, in some cases, actually taking early retirement now. It is apparent in the market that preparation is being made by those with the funds and foresight to be ‘set up’ for their retirement.
Try buying on the coast or in prime rural areas and you will see the effect of this preparation.
In 2006 boomers will be approx 60 and this trend will probably evolve even more. As they get closer to age 65 the boomers that plan to use their PPOR equity to help fund their retirement will probably start looking for buyers.
I do not suggest “a big bang theory” but prices should plateau and stay that way for some considerable time.Guys,
I don’t think the bust that BIS Shrapnel are forecasting is predicated in any way on the Baby Boomers. Its just a simple macro-economic projection based on the current level of foreign debt and our ability to service that debt. It includes the current lack of affordibility of housing and the likely impact of this as well as currency markets etc.
There’s no question that property boomed to far and all of the current indices point to a major correction. Its just that BIS Shrapnel are forecasting a gradual correction culminating in an economic bust in 2008. Our current economic conditions are similar to that of the Keating years when he predicted the “Recession that we had to have”.
Don’t get too caught up on the Baby Boomers, this is more of an economic outlook than some crystal ball gazing based on demographic adjustments.
Cheers,
Michael.Originally posted by Lucifer_au:MMmmm….
A bust in 2008… I don’t think so, mainly because of the baby boomers. Right then they will be earning quite a high income so why would they sell their properties?
Call a redundacy, doubt more than 50& of BBers will have the luxury to choose when they retire, the other form of redundancy is to little work em till they break.
I’m an accountant BBers are my clients and in recent months seen two big income earners (250 + 150 )phased out 5 yrs before they wanted to, and one just give up.
We then play crunch the numbers.
I attended a private meeting with Peter Switzer who predicted that interest rates would be 10% by 2008.
He also said that all his economists mates could not see too much going wrong until that date.
The two worst property markets predicted were Sydney and Melbourne, except the top end of those markets (wealthy people, old money)
The best market for growth and investment was Brisbane, largley fueled by life style change. It is not only the baby boomers moving North but also the smart gen.x’s.
25% of Australias population starts to retire in 2010 and the next recession is set for 2011. gen.x’s will be about 30 then and at that age i was paying 19.33% interest on a loan of 5mill for 2 years (welcome to my world).
I have a mate of mine (35) who now lives at Laguna in the Whitsundays, still got his business in Melbourne, but wanted a life style change, its not just the BB’s that are opting out.
You don’t need to be worth millions to live a happy and content life, its a matter of knowing what you want and making your investments work for you, its a matter of choice.
There is still a high demand to produce stock for the imagration market into Aus. We are producing smaller lots now 400-500m2 which is putting demand on other areas such as services. I see a huge demand in the lower end of the market, retirement villages, van villages, retirement/rental.
We must remember that there is a medium band which is the largest portion of the market. Only 3% of Australia in wealthy (rich) and 85% average.
The average wage in Aus is about $45k including BB’s and our debt per head of population has blown out of control. This is where I see the major problem, teaching people to save rather than, spend today and don’t give a s..t about tomorrow.
All these so called stats (and so called experts) must reflect on this single issue, we are living beyond our means in the luckiest counry in the world … we are blowing our personal wealth … lack of financial fundermentals.
IMHO people need to stop comparing them selves to others and focus on their own life goals and their families.
Phil
These wealthy BBs must be just small percentage of total BBs if you read what the latest news about superannuation yesterday. Some of them will experience 69% drop in their income. Many will not be able to maintain their current lifestyle. I wonder what is the percentage of BBs have IPs and will be independently wealthy enough to maintain their current lifestyle on their retirements.
Hi Zen, great name.
What many people fail to remember is that many BB’s went through 1990/1995 in a recession paying up to 17/19% and were wiped out. I would like to see gen.x go through this experience (not) and build some character.
BB’s were not encouraged into property gearing until 1994 onwards when it became more popular, more common place and acceptable. Compulsory super only came in 1991, so thats why so many baby boomers have left it too late and are panicking now because retirement is within reach and time is running out.
Most younger people have a misconception that all BB’s are rich, I can tell you that this is totally wrong, thats how I make my money, advising BB’s.
I keep going back to the basics here and the basics are that 95% of Australians will fail to maintain the same life style at retirement that they were enjoying when they were working because of bad PLANNING.
Yes even gen.x, gen.y, and so on – call it denile, stupidity, ignorence, what ever you want only 5% well succeed. Out of the 40,000 members of this site only 2000 will succeed, the other 38,000 will fail.
How many people on this site contribute in a positive manor (the successful ones)why don’t the others contribute well I had better not say (dreamers and experts with no money, fear)
I wasn’t born with a silver spoon in my mouth, and became a millionere at 28, its called hard work and risk with plenty of failures along the way (now experience).
IMHO the market will go up and down like the sun rising and falling, and governments will change and interest rates will rise and fall, but the one who fails to plan and save will regret what they could have done at a time when they had it all. (i’m a poet and i don’t know it)
Regards always Phil
Apparently most Australians retire with no more than $90,000 in super, according to Money Magazine Dec2004. The Institute of Chartered Accountants estimate that at age 65, the average retiree will need 125% of their pre-retirement income for the first 5 years and 75% thereafter until admission to a care facility. As a male expected to live to 81 you will need $760.000 if your salary was $60,000. More for females who have a slightly longer life expectancy.
There are a lot of ‘ifs’ and ‘buts’ in this concept but it does suggest that assets will be sold in order to downsize and realize more capital by many retirees. I continue to sound as if I am predicting doom and gloom but it seems clear that property prices will stagnate and even continue to drop in urban areas.
I would love to hear some research that contradicts mine so I can see my way clear to continue investing in property.
Marsden,
Again, some good points. I guess my take on it is that the BBs will be retiring and, by necessity, downsizing. This will increase the “supply” side of the property ledger. The question is whether the “demand” side will stay at current levels or maybe even drop of the BB investors come out of the market. If this happens then more sellers and the same number (or less) buyers would reduce the selling prices of property. Basic economics 101 demand and supply curves.
However, I don’t think we can maintain our economy at current levels if this were to occur, so the government will need to intervene in some regard. I believe the only way this can happen in a timely manner is via immigration. We cannot have a disproportionate number of retirees, its unsustainable. Call me an optimist, but I rely on the government to regulate the economy. If they don’t act then you’re right: its all doom and gloom.
Cheers,
Michael.I think the problem with relying in immigration is that most other developed countries will resort to the same thing and competition for migrants will be strong. With Australia being little more than a holiday destination it is hard to see how we could attract skilled career people in any great numbers. One million Australians agree and have departed our shores for the likes of London, New York etc – an all time high and a national disgrace.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
ive got 2 words to say that should scare the hell out of generation x’ers. REVERSE MORTGAGEs….
so no need to bboomers to sell but still have access to cash..
might be worth holding on to bank stocks if this becomes the drug of choice.
i have no idea what effect this will have. interested to hear what you guys think..
a reverse mortgage only delays the problem, when the BBs finally pass away who will buy their properties? the banks would need to consider their risk exposure – they may find they are owed more than they can recover from these properties.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Aussierogue, reverse mortgage, yes that is a concern it scares the hell out of me. In Japan they have 3 generation loans (100 years) is that progress or regress.
AusProp, delay the inevidable absolutely. My sole arguement has been that our thinking has changed and we are getting further in the shit.
Think about governments, their solution is to increase taxes, but who pays the most taxes?, “the little people” the sophisticated person miminises their taxes. We are going back wards just look at the increasing personal debt level per head of population?????????[ohno2]
Phil
Thanks for the explanation Phil. I agree with you that at the end of the day only small percentage of the population will retire wealthy (now or in 30 years time). I remember reading about it on Noel Whittaker’s book long time ago. I think only around 2-3% will retire wealthy and large percentage (40-50%?) will rely on pensions.
The irony is that while people and BB’s are buying up IPs and accelerate price increase, the younger generation finding it tough to get into property market. They have to spend large portion of their income on repayments and further discourage them of having children.
Maybe the market will correct itself in the long run?
I quess the government will have to do something with immigration in the near future.Hi Zen,
The younger generation needs to adopt clear stratagies to build wealth. I have a young mate of mine (19yrs old) who I am helping to get started.
We secured a 1 bed room ground floor unit in Parramatta in Sydney (built 1978) walk to every thing, train, shops, bus etc.
He lives at home and contributed $20k plus his dad gave him $15k. This property is neutral geared and he is working hard to reduce debt and increase equity fast.
I won’t go into the remaining stratagy here, but he’s on his way well and truely.
Success stratagy to build wealth fast for young people;
1. do not lease a car on a PAYG income
2. cut up all credit cards except an emergancy card with a small limit.
3. open a seperate bank account and bank money in weekly “savings”
4. work 6 days a week, get a second or third job, it won’t hurt you.
5. stay at home as long as you can.
6. if your partner does’nt agree, get a new partner.
7. live within your means
8. stay away from interest free store accounts.
9. if you can’t pay cash for it you can’t afford it.
10. be nice to people you will meet them again and they will remember you.
Build assets not liabilities … Phil[xmas]
Phil,
Like your 10 tips.
Its refreshing to see someone actually suggesting that getting a job and working hard might be the means to financial wellbeing. I get a bit put off when I read all these books that say the “poor dad” is the one with the good job, and the “rich dad” is the high school drop out who just bought up big in property. I think a job is critical to your financial future in that it gives you cash flow. Its hard to service investments without cash flow!!
I guess those with the good jobs run the risk of thinking that this, by itself, is the means to financial riches. Its not! But it does make it a lot easier to get there if they’re prudent in their investments.
If I read one more coaching style book which paints the well educated as the fool, then I’m likely to explode. Uni helps! It will get you a better job and give you more cash. Its what you do with it then that’s important.
Cheers,
Michael.
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