The Past Decade in Property in Charts

It’s been an interesting decade in property – lets take a look at a few charts to learn what’s gone on.

The last 10 years was a period through which a great deal of wealth was created in Australia to the extent that we are now the richest nation on the planet in terms of our household wealth.

Keep in mind what opportunities there might in the decade ahead with the power of compounding.

Like the rolling of a snowball from the top of a hill, where a constant rate of return is achieved on an investment portfolio, the gains grow larger and larger with each passing year or period of time.

Headcount

In just 29 days time Australia’s population clock will tick past 23,750,000 (we’ll have the latest figures by state for you here on Thursday).

Over the past 10 years the population of Australia has increased by a massive 3.7 million or 18.4 percent.

The rate of growth got a bit faster, then a bit slower, then a bit faster again…but the direction remains clear enough and it will in the decade ahead too.

 

Most of the population growth has been experienced in Greater Sydney, Melbourne, Perth and Brisbane/south-east Queensland.

Sydney’s population growth has accelerated of late and we’ll likely see some unprecedented population growth figures in the harbour city in due course.

Expect similar levels of population growth in the decade ahead.

This of course creates huge opportunities for investors who can isolate demographic trends and spending patterns.

Labour

Despite endless talk of possible recessions for at least the past eight years, we have not had a recession in Australia for well over two decades (see the early 1990s on the below chart) and the labour force has increased by around 1,965,000 or 20 percent over the past decade.

Over the last five years, the huge bulk of the jobs are being created in just those same four capital cities plus south-east Queensland. Regional Australia outside Queensland has not been creating jobs in aggregate, a trend we expect to continue.

The headline rate of unemployment fell as low as we have seen in modern times by 2008.

Later in that year doom and gloom forecasters predicted up to 20 percent unemployment as a result of the financial crisis, but in the event the rate peaked for the cycle with only a “5 handle”.

We are now seeing relatively high levels of regional unemployment as the mining construction boom unwinds.

The unemployment rate in Greater Sydney already appears to have peaked for this cycle at a shade over 5 percent, but interest rates will likely still need to fall due to weaknesses elsewhere in the economy.

Pay

Wage price indices have increased by 45 percent in the private sector and 48 percent in the public sector over the past decade.

In the earlier years of the past decade the mining states led the way, now other states are playing catch-up.

Economic Growth

GDP in Chain Volume Measures terms has increased impressively by more than 30 percent.

 

The economy grew quickly, then a bit slower, then more quickly again, and then a bit slower.

But it kept growing.

Australia’s GDP per capita in constant prices terms has increased healthily from around US$33,300 to US $37,500 since 2004.

House Prices

Our chart packs haven’t yet quite gotten up to December 2014 for dwelling price indices.

As is typical for cyclicals such as real estate there were several distinct periods where dwelling prices were declining in real terms but, over the long term well located capital city dwelling prices continued to increase.

Unfortunately there have been some unusual recommendations as to where to buy and what type of property to buy over the years, but for anyone who has invested wisely in well-located capital city property dwelling prices have increased significantly, resulting in steadily compounding returns on investment.

Part 6 – Share Markets

Those of a negative bent will always take the line that the share market is “only at the same level as it was in 2008” (or whatever the case may be), by tracking back to a recent time when valuations were as high as they are today.

While this may be technically true, it is also disingenuous since it deliberately ignores the point of share ownership or stock market investment, that being the compounding income component (to be fair in some cases pundits also just don’t know what they’re talking about).

The index is up by around 25 percent in any case and a dividend-rich portfolio has more than recovered any losses that may have been incurred during the 2007-9 crash.

On an accumulation index basis in other words, the ASX touched new highs in recent months.

 

 

By way of an example of why this is important a $30/share investment in Commonwealth Bank (CBA) has almost completely returned the initial principal invested in fully franked dividends over the past decade.

Despite ongoing hypothetical discussions about banks going bust that same initial investment is continuing to grow and compound income returns above and beyond the initial $30/share investment in perpetuity, while of course today those same shares are also trading at well above $80/share.

In approximate numerical terms, despite the impact of the global financial crisis $100,000 invested in CBA has returned almost the same $100,000 in fully franked dividends and the same investment is worth well over $250,000 even without the dividends re-invested.

That’s compounding in action.

The Wrap

Of course, depending on your outlook on life, you can say “yes, but…” against each of these points and charts.

This rather depends on whether you are a “glass half full” or “glass half empty” type of person.It is ever thus.

Where optimists see opportunity and abundance, pessimists see problems and risks.

Over the next decade and over the longer term, successful business owners and investors will continue to compound their wealth just as they did in the last decade and the decades before that, provided that they invest sensibly and wisely in income-producing assets.



Want more of this type of information?


Pete Wargent

About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


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