“We’ll be Right” – Australia’s Economy has shrugged off financial crises for quarter of a century
Firstly, as an update the RBA continued to keep the official cash rate at an all-time low of 1.5% at its April meeting, which it has done since last August.
The interesting development since my last newsletter is that all the banks have raised both variable and fixed interest rates regardless of the RBA rate policy.
I certainly hope our readers have benefitted from my timely warnings about this outcome.
Now to the interesting topic of one of the longest periods of economic expansion in the modern era.
The measure being used here to define a recession is two consecutive quarters of economic contraction and the last time that occurred in Australia was in 1991.
The current economic growth record is held by the Netherlands and lasted from the fourth quarter of 1980 to the second quarter of 2008, and somewhat like Australia this economic expansion was also helped by resource discoveries and subsequent exports.
Australia has been an obvious beneficiary of the demand for resources from a developing China but there is growing demand from other developing Asian nations which is rarely mentioned in news articles but will continue to provide an economic boost in years to come.
Some economists disagree with this measure and Saul Eslake says his preferred measure is whether unemployment has risen by 1.5 percentage points or more in 18 months or less as it gives less false signals. His analysis has Australia already ahead of the Netherlands which is tied with Austria.
Regardless of what measure you believe in, Australia has a robust starting point of 2.5% growth per annum with about 1.5% coming from population growth. The latest Australian Bureau of Statistics (ABS) published demographic data for the September 2016 quarter showed that at the end of September 2016 there were an estimated 24.22 Million people living in Australia with the figure having increased by 1.5% over the prior 12 months.
This continued ongoing strength in immigration is also obviously a key driver which underpins the residential property market and will help to absorb some of the peak supply which is being delivered this year in some of the capital city CBD precincts. More importantly for our clients, it also means that demand for quality housing aimed at the owner occupier market in the inner-middle ring suburbs of east coast capitals will continue to remain strong.
So will this economic expansion continue to become the longest since post war Japan?
If I look at what has caused recessions in Australia in the past, it has generally been the Reserve Bank of Australia aggressively lifting interest rates to combat inflation. Many of us will recall the 18% interest rates just prior to our last recession in 1991 and bearing this in mind I really don’t see inflation running away in the near future as wage growth has been almost non-existent and the large amount of household debt will probably deter the RBA from tightening over the next year or more..
So, the answer is yes we probably will become the country with the longest period of economic expansion in the modern era and Australia will remain “the lucky country” for now.
The other important factor to consider is that tourism is once again becoming an economic driver for the economy as the Australian Dollar has declined over 25% against a basket of currencies and we can see many of the global hotel chains greatly increasing their number of properties coming on stream in Australia.
From a state basis, South East Queensland will be one of the biggest beneficiaries of this trend as the new mega casino complex that is currently being constructed in Brisbane is forecast to attract an additional 1.39 million tourists each year. It was also the state that suffered the most during the years of AUD strength and this has been rebalancing only over the last 2 years.
As an investor in Australian residential property, these macro themes add substantial comfort as long as we continue to observe the basic fundamentals to ensure that we are buying quality assets in the right areas and at the right price.
There is no substitute for research and experience!
Why Sydney property is cheap compared with Shanghai
By Angus Grigg & Lisa Murray
Thirty minutes drive from downtown Shanghai is a suburb which would never grace the glossy brochures promoting China’s commercial capital, even if the price of apartments would suggest otherwise.
In the Putuo district, known mainly for its bland tower blocks, a three bedroom off-the-plan apartment of just 98 square metres is on the market for 9.1 million yuan. That’s $1.74 million in a city where the average wage is still only $1215 a month.
Even when taking into account that China’s wages data often underestimates the real earnings of many workers, it shows why, for Chinese buyers, Australia looks cheap.
China Vice Premier Sees `Unstoppable Momentum’ of Globalization
March 24, 2017
Ships sail through Victoria Harbor at sunset near the the Kwai Tsing Container Terminals, right, in Hong Kong, China.
Photographer: Seong Joon Cho/ Bloomberg
Chinese Vice Premier Zhang Gaoli told a gathering of Asian leaders that the world must commit to multilateral free trade under the World Trade Organization and needs to reform global economic governance.
Negotiations on the 16-nation Regional Comprehensive Economic Partnership, an Asia-wide agreement that’s favored by China, should be concluded soon and regional cooperation such as with the Association of South East Asian Nations should be advanced, Zhang said Saturday in a speech at the Boao Forum for Asia, an annual conference on the southern Chinese island of Hainan.
Sydney’s luxury hotels were almost fully booked in the first two months of the year as Australia’s gateway city benefited from a surge in corporate visitors and holidaymakers.
JLL Hotels & Hospitality recorded the five-star occupancy rate over January and February at 95 per cent and 90 per cent across the broader Sydney hotel market.
“We have seen strong sustained demand increases for accommodation in Sydney over the last few years and this has had considerable impact on not only the rates achieved by hotels but also whether those travelling for business or leisure can even get a room” said Craig Collins, Australasia CEO of JLL Hotels & Hospitality Group.
Mr Collins added that Sydney’s occupancy rates were now among the highest in the world and ahead of global visitor destinations like New York, London, Paris & Hong Kong through the year to date.
When asked most people would consider Sydney to be a far stronger economy than Brisbane, with far higher wages. Sydney is a global city by most measures, not dissimilar to the likes of New York or London. Sydney is one of the economic powerhouses of Australia and along with Melbourne is growing at a rapid…
If you’re an expat and you plan on returning to Australia when you retire, or even before that, it makes sense to have a solid foot on the property ladder first. You may want to enjoy the climate and more laid-back lifestyle in your golden years, but if you’re planning on returning without working, then…
On Friday, the Federal Government announced the biggest change to lending standards we’ve seen since the GFC and it could make finance a lot easier to obtain for property investors. Treasurer Josh Frydenberg is poised to put some of the responsibility back on the borrower and away from the lender in a move that aims…
After a period where we’ve seen some of the lowest interest rates in history, investors are now starting to take a closer look at what rising bond yields are telling us. Over the past few months, the yield on both US and Australian Government bonds has been rising sharply. As it stands the yield on…
Property markets in both Sydney and Melbourne are showing the early stages of prices stabilising with the first signs of growth since the market peaked in 2017. Australia’s property market has been reinvigorated by a host of regulatory and monetary policy moves in recent times that have led to a huge lift in confidence. The…
Australian property is a popular destination for international investors looking for lower risk and consistent capital growth. We’ve outlined 5 top tips as a guide for international buyers looking to get started in investing in Australian residential property. 1. Yield or Capital Growth Rental yields in Australia will tend to range between 3 – 5%,…