Australian Property: Offshore Wealth Will Drive it to an Extreme High

Most economists will tell you that you need two things to create wealth: labour and capital. That’s why none of them saw the GFC coming.

The most important factor, land — or more specifically, the return you get from owning it — is omitted from all their economic modelling. Actually, the GFC was simply a part of the larger and long running property cycle that I have been able to measure since at least 1800 in the US and almost back to 1600 in the UK.

You can see the property cycle and how it moves and turns, all around you. I’m on my way back to the London office. Through Melbourne airport, the security guy is still there, dishevelled shirt and pot belly, and he’s still angry at all the Indian cab drivers. (Macquarie Bank make more money owning the airport rent than they ever will training their staff effectively.)

Flights into and out of Australia are full. There are few empty seats in cattle class these days, though business class never appears full all the time. Melbourne Airport is looking old and tired, but ever increasing numbers of Chinese will go through it in coming years. Air China flights are increasing every year, and from more and more destinations. Who would have thought Melbourne would ever see a direct flight from Chengdu?

The Singapore Business Times front page produces an interesting read: ‘Foreigners share of home purchases creeping up’ screams the headline. Gosh, don’t they like rich Aussies buying up the place? And that’s where it gets interesting. Foreign buyers pushed up property prices all across Asia last cycle; our wealth bought up (to us) cheap houses in that part of the world. So much so that locals are having a hard time affording to live in their own countries…

Lots of industry coming to Asia and the surrounds now: In Singapore, ExxonMobil this year is to add a further two downstream rubber and resin plants to its already new second complex at Jurong Island.

$10 billion has been invested already, another $5 billion to go. Exxon is planning for an additional 500 million cars over the next 30 years. And that’s planning merely for the nearby region. (I do hope more than a few of them are electric; Elon Musk says he will be in China producing electric cars within four years.)

Singapore knows what it is doing though. You can’t buy the land in Singapore; you have to lease it from the people, via its government. They have a few rules for foreigners too, who usually cannot buy below the 4th floor, so that units stay lived in and not empty (and unsightly) at ground level.

The Singapore government understands what the economic rent is too, and collects it for the people as part of their Sovereign Wealth Fund. This will make Singapore the richest nation on earth in about 50 more years or so.

Australia is in for an interesting real estate cycle going forward. The current one has just started and will run a long time yet; well into the 2020s, minimum. Asia is now where ever more wealth is being produced, especially in China. We all know that now though it was less obvious back in the 1990s.

Australia is about to experience what most of the South East Asian citizens have known since the prior cycle at least; offshore wealth driving property prices to unheard of extremes. Get used to it. Australia is going to see one hell of a property cycle as the incredible wealth produced in the next decade flows through to nations like ours that have a secure property rights system where investors know they can get their money OUT again should they need to.


Phil Anderson
for The Daily Reckoning Australia

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Phillip J Anderson is an Australian academic, author and student of stock, commodity and real estate cycles. Drawing on the work of British economist Fred Harrison and American technical analyst WD Gann, Phil developed his own theory about 18-year real estate cycles in the early 1990s. Since then, Phil has been using cycle theory to guide his own investment decisions — crediting the phenomenon with his decision to move to a 100% cash position in July of 2007, just before the GFC wreaked havoc on the Australian stock market. He has also built up a lucrative property portfolio here and in the UK. Phil is currently predicting a 14-year boom in Australian house prices.

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