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Australians all let us rejoice for we are resource rich

With Europe possibly heading into recession and concerns about China’s economy slowing down, there is a lot of negative sentiment in the media toward Australia’s future economic outlook.

And according to Terry Ryder in a recent article published by The Australian, this mentality is feeding into an overwhelming public perception that we are about to be dragged into the depths of recession by all the financial woes being experienced across most of the developed world.

But is it really as bad as all that, or should we start being a bit more Monty Python-esqe and look on the bright side of life here in the Lucky Country?

“We’re on the threshold of the greatest period of prosperity in our history and there will be mega repercussions for real estate,” predicts Ryder.

However he says most people have no idea when it comes to the magnitude of what’s on the horizon, because the dollar amount in terms of investment is so big as to be almost incomprehensible and the government is failing to get the message across to the wider public.

Ryder says that even though the value of upcoming projects in Australia is in the range of $500 billion, we still “have a boom nation with a recession mentality. It’s quite bizarre.”

He cites the township of Gladstone as the perfect example of the financial implications our “resources revolution” will have on the economy into the future.

Currently, says Ryder, there are seven large scale projects underway in Gladstone that are set to create at least 17,000 new construction jobs, and at a total investment of around $55 billion.

“There are a further nine projects regarded as committed to start in coming years. These total about $25bn in investment and a further 11,000 construction jobs,” he adds.

“The total impact is $80bn in investment and 28,000 construction positions.”

Ryder says Gladstone is such a good small-scale example of the overall future prosperity Australia stands to enjoy due to its not-too-distant past, resources fuelled boom.

He says in the pre-GFC years, there was about $20 billion worth of projects in the pipework for Gladstone. The promise of such massive infrastructure investment and all of the positive flow on effects that would go with it for the town saw real estate prices grow in double digit figures for four years in a row between 2004 and 2008, with 30 per cent plus growth occurring in 2007 alone.

“Gladstone’s median house price rose from $230,000 in 2005 to almost $400,000 in 2010, despite a relatively minor decline in 2009 after the impacts of the GFC were felt,” says Ryder.

“Now ask yourself this: if $20bn in investment inspired that kind of real estate growth, what will $80bn do?”

Today the Queensland town is a bustling hive of activity, with its store of offshore natural gas and the subsequent construction of four massive processing facilities putting the community well and truly on the map.

Global resources giant Bechtel is building three of the four processing plants on Gladstone’s Curtis Island. Manager of the company’s LNG projects in Australia, Dick McIlhattan says, “The total world production at the moment is 200 to 220 million tonnes per annum. Our four Australian LNG jobs, including the three currently under construction on Curtis Island, will produce 40 to 45 million tonnes per annum.”

With thousands of new jobs being created as a result of this unprecedented work, accommodation in Gladstone is becoming increasingly hard to find. Developers are scrambling to build new houses to keep up with the ever-growing demand, in a city whose population is projected to double in the next two decades.

Gladstone is one of a number of towns throughout Queensland, NSW and Western Australia that are flourishing in the wake of our resources boom, with many such areas experiencing exponential growth in local house prices and rental prices, even as most capital city dwelling values are either flat lining or inching downwards.

My opinion

If you’ve been following my blogs you’ll know I don’t think you should be investing in regional mining town. Instead you should invest in the big mining towns like Brisbane or Perth, which have a much bigger population base and economic diversity

For me, the big question that needs to be considered is; how sustainable is this rapid fire growth in house prices and the local economy of the regional areas?

Sure, things are booming right now, but all it takes is one small glitch in the economies of developing Asian countries to see the whole thing come crashing down overnight. It has happened before to mining towns and no doubt, it could happen again.

Yes, Australians should rejoice in the prosperity that has resulted directly from our wealth of natural resources, but we should definitely not allow billions of dollars to make us complacent enough to think these mini booms in mining towns could last forever.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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