“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
AFR
By Angus Grigg & Lisa Murray
The Sky Horizon apartment complex in suburban Shanghai where new apartments of 98 sq/m are selling for $1.74 million Supplied
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.
Sydney, Melbourne top 10 for world’s wealthiest to invest: Knight Frank
JONATHAN CHANCELLOR | 6 APRIL 2017
Australia was now a key focus internationally for the super-rich, according to Knight Frank’s Global Head of Residential Lord Andrew Hay.
Sydney and Melbourne are on the top 10 list of most important cities globally for the wealthiest to invest, according to the Knight Frank City Wealth Index.
Sydney ranked 4th and Melbourne ranked 10th in the ‘investment’ category.
“Countries that offer a fiscal and political ‘safe haven’, as well as excellent quality of life, are expected to see strong growth over the next decade in UHNWI populations,” he said.
Hay was in Sydney on Wednesday to promote Knight Frank’s 11th annual Wealth Report.
Lord Hay said that the increase in the ultra-wealthy population globally has occurred despite ongoing political and economic uncertainty around the world having more of an impact on future trends.
The Brisbane apartment market has been self-correcting and unlikely to suffer any great supply-demand imbalance, Urbis have tipped.
The report comes Greater Brisbane faces an oversupply of 8000 new dwellings this year as scheduled completions outstrip population-driven growth in demand, research group SQM has estimated.
However, figures from planning consultancy Urbis suggested that the number of units under construction in Brisbane was dropping sharply.
The Urbis report shows that only 1812 units are under construction in the CBD across four projects.
In 2017, some 666 units will complete, with 810 units completing in 2018, and 336 in 2019.
A drop-off in settlements next calendar year would also improve the balance, it said.
“The market will be crying out for new product in 2019. We certainly don’t see any oversupply issues in the CBD,” developer Consolidated Properties executive chairman Don O’Rorke said.
China Vice Premier Sees `Unstoppable Momentum’ of Globalization
Bloomberg News
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.
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