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Decades of wealth ahead for property investment

2012 has already started out as a year of economic confusion and consternation.

We all know the strength of our property markets is underpinned by Australia’s economic prosperity and of course this is closely intertwined with China’s growth.

However, with the economies of many countries faltering, stories of a property bubble in China and of China’s growth slowing, some are concerned that stumbles in China’s economy could stunt Australia’s economic growth.

So let’s look at what’s really happening in China and what’s ahead. And more importantly what this may mean to your and my wealth…

Why is China growing so fast?

In 1978, after years of state control of all its productive assets, the government of China embarked on a major program of economic reform.

In an effort to awaken a dormant economic giant, it encouraged the formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and invested in industrial production and educating its workforce.

The strategy has worked spectacularly well and now the People’s Republic of China ranks as the world’s second largest economy after the United States.

Over the past 30 years it has been the world’s fastest-growing major economy, with consistent growth rates of around 10%. China is also the largest exporter and second largest importer of goods in the world.

What’s ahead?

Since 1978 hundreds of millions of Chinese have been lifted out of poverty, yet there’s still a big job ahead, with hundreds of millions of rural population as well as millions of migrant workers still living on less than $1.25 a day.

As China goes through its industrial revolution it plans to move over 350 million people into its cities in the next 15 years.

If you think about it, this means they would be building the equivalent of seventeen Australia’s in the next 15 years. Now that’s a mammoth task and as Australia’s biggest trading partner, China requires massive resources to fuel this growth.

To help put some perspective on this, ANZ’s Paul Braddick suggests the following could happen in China between now and 2025:-

  • 350 million more people will move to the cities – 103 million have moved since 1990
  • 221 Chinese cities will have 1 million + people living in them – the whole of Europe has 35 today
  • 1 million kilometres of new road and 28,000 kilometres of metro rail will be laid
  • 170 mass-transit systems will be built – twice the number that all of Europe has today
  • 40 billion square metres of floor space will be built to construct five million buildings
  • 50,000 skyscrapers will be built (+30 stories) – the equivalent of building 2 Chicago’s every year
  • 97 new airports will be built
  • 1 in 7 planes assembled by Boeing and Airbus will be delivered to China
  • 1,000 MW of coal-fired power capacity will be commissioned every week – equivalent to 4 million tonnes of new coal demand
  • 1 wind farm turbine will be built every hour and a half

What’s happening there now?

China’s economic growth has been enormous, at around 9% per annum. While this is likely to drop a little over the next few years, the growth in some of its big cities is almost double that.

Interestingly, there are currently 16 cities the size of London in China. Cities I’ve never heard of.

Have you heard of Changsha, Chengdu and Chongqing?  Neither had I.

What about Weifang or Wuhan?

Cities like these are the backbones of China’s 30 or so provinces, whose astonishing economic growth is largely responsible for keeping the world’s economy in the black. For example, the economy of Shandong province itself is larger than those of several G20 countries.

This is not only creating a new middle class in China but also a new group of very wealthy individuals.  According to a study by Julius Baer Group, China’s millionaires account for about half of the rich people across the 10 major economies in Asia and the number of millionaires there will more than double in number to 2.8 million by 2015.

What does all this mean for Australia?

Australia stands poised to capitalise on an economic transformation unparalleled in our nation’s history, with a resources and commodities boom capable of generating $480 billion of exports a year and creating 750,000 jobs in the next 20 years.

But there’s more to it that that…

Currently over 80% of our exports to China are resources; however looking forward, China offers markets of enormous proportions for all the modern services that a developed economy like Australia has to offer. We are in a prime position to supply the world’s fastest-growing major economy with food as well as a raft of products and services.

One more thing…

If we play our cards right, Australian tourism could be boosted as we become the playground of the new rich in China who will want to holiday in a nearby country, just as we were a preferred holiday destination of the Japanese in their heyday in the 1980’s.

According to the ANZ Bank, almost $2 trillion needs to be invested in the Australian economy for our nation to capitalise on the mining boom caused by the developing world’s march towards urban industrialisation.

While our new economy will be underpinned by mining, the benefits will flow through to our service, education, tourism and property markets.

Sure there will be ups and downs and lot’s of problems ahead, however we are indeed the luck country and our economy will remain the envy of the developed world.

What does all this mean for you and me as property investors?

While many factors affect a country’s property prices in the short term, in the long term they are driven by 2 main factors:

1. Population growth and

2. The wealth of the nation.

As I’ve explained in previous blogs, strong population growth is a given and as I have just explained now, so is our increasing wealth.

I don’t think that anyone would argue that, as a nation, Australia will become wealthier over the next 15 years.

Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population. We have vast resources that will be required by our growing neighbours and we’re at the beginning of the mother of all resource booms.

Sure some companies and their shareholders will become richer, but so will the average Australian. On many accounts the average Australian is richer already than people living in most other countries, however some people living in Australia just don’t see that and complain and protest.

In conclusion:

While property prices are in a bit of a slump at present, that’s just part of the property cycle.

As the cycle moves on, and it always does, the combination of population growth and increasing wealth will underpin the strong growth of capital city property values – as they have done for decades.

So, if like me, you are confident that Australia has a prosperous future, our current softer property markets could be the ideal time to start or add to your property investment portfolio.

I have always found it a good time to buy when everybody tells you that property is a bad investment. Now is the time to get set for the future.

I expect more buyers to return to the market this year when they realize prices won’t fall any further and as the world’s economic woes sort themselves out.

I am going to explain to you exactly what I’m doing about it personally, when I’m joined by finance strategist Rolf Schaefer and tax specialist Ken Raiss as we conduct our National Property & Economic Update seminars in 5 states in the next few weeks.

If you own property, are thinking of getting into property or have any interest in property, please click here now and  join me at these one day trainings.

Of course I’ll keep you up to date with how to take advantage of the changes happening in our property markets in future updates, but it is probably appropriate to remind you that in changing times like we are experiencing, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team at Metropole have no properties to sell, so their advice is independent and unbiased.

If you want to find out a bit more about what is happening in your local market and what our research suggests is in store for us, join us at a free property briefing in Melbourne, Sydney and Brisbane or with our associates in Perth. Just click on this link to find out more and reserve your place.

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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


'Decades of wealth ahead for property investment' have 9 comments

  1. Avatar for Property Update

    February 17, 2012 @ 8:21 am Michelle D

    Thanks for this.
    We get so much news about what’s happening now – too much info some times – that we forget the big picture.
    It’s great to live in Australia

    Reply

    • Avatar for Property Update

      February 17, 2012 @ 6:19 pm Michael Yardney

      Thanks for the kind words Michelle
      You are right – with the constant bombardment from the media and our short term challenges, it’s easy to forget the big picture

      Reply

  2. Avatar for Property Update

    February 17, 2012 @ 2:21 pm Stuart Nagle

    Michael, does this mean you will be looking to investin the mining rich states such as WA and QLD. Would you look at investing directly in mining towns?

    Reply

    • Avatar for Property Update

      February 17, 2012 @ 6:16 pm Michael Yardney

      Hi Stuart
      There is no doubt the resources rich states will benefit tremendously over the next few decades.
      As will property in these states.
      But not all properties will benefit equally. I definitely wouldn’t suggest investing in mining towns – I haven’t and I’ve explained why in this blog:
      http://propertyupdate.com.au/beware-of-the-boomtown-blues/
      Instead I would invest in the capital cities that will have a spin off effect – but at the right stage of their respective cycles

      Reply

  3. Avatar for Property Update

    February 19, 2012 @ 10:17 am James Cartledge

    Michael,
    I now tend to agree with your views on mining town investing, but if we all opened up our thoughts and minds 2-3 years ago , myself included , then we could have been extremelly financially better off just by adding say 1 property in Moranbah , Qld.
    My personel view is it is now to late to jump in as the house prices are extreme and so are the rental returns however.
    We would have had to revert to a trader more than an investor though , as the properties would have been a major cash boost to anyone who got in early.
    I can see good growth in Brisbane in the coming years for any Qld investor.

    Reply

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      February 19, 2012 @ 10:27 am Michael Yardney

      James
      That’s the trouble with mining town, in fact hot spots all around Australia. They are volatile.
      I prefer long term steady growth, knowing in any one property cycle, there will be some flat years.
      I agree with your assessment of the Brisbane market. In fact I’ve asked Michael Matusik, a leading independent property analyst to join me in Brisbane on March 10th at my one day traings to give his views of the Qld markets. I hope you can join me there http://www.propertyupdate.com.au/2012-events/national-property-and-economic-market-update/

      Reply

      • Avatar for Property Update

        February 20, 2012 @ 1:22 pm Sherif Ghobrial

        Hi Michael, i came to your “real world seminar” last year, i will be calling you up next week for the one on one chat :). Thanks for this update, indeed we have a very blessed country, specially compared to where i was born, Egypt! hahaha. Like all booms they all finish off sometime, they cant keep going on forever, you think this one will go for the next 20-25years? China is the main player, but others like india, vietname, malasyia, etc are coming on too. Egypt had its boom 3 thousand years ago, very different time now! hahaha

        Reply

        • Avatar for Property Update

          February 20, 2012 @ 1:55 pm Michael Yardney

          Hi Sherif,
          Good to hear from you. You are right – nothing lasts forever. This too shall pass!

          Reply

  4. Avatar for Property Update

    February 20, 2012 @ 7:38 pm Mitchell Harper

    Great video Michael, couldn’t agree more. Thanks for sharing.

    Reply


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