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Fortune will favour the patient

Wouldn’t it be nice if we could wave a magic wand and instantly pull the Australian economy and property markets out of uncertainty and into a robust recovery?

Barring an unlikely Fairy Godmother popping in to grant us that one wish, the only thing we can do at the moment is watch, wait and remember that old adage that patience is a virtue.

There’s no doubt that things will pick up again at some point in the future.

Obviously no one knows when things will turn round but in the meantime, smart investors are taking the opportunity to use the current softer conditions to set themselves up for the next stage of the property cycle.

Chief economist with BIS Shrapnel Frank Gelber, says in an article published in The Australian that while growth might seem a bit on the laborious side when it comes to everything save the resources sector right now, investment will slowly begin to broaden beyond the mining industry.

“Demand softened last year after the 2010 rebound, and confidence turned to water. Everyone was looking at the dark side, and still are. Structural change is painful for many and the politics isn’t helping,” says Gleber.

He says with the recent stall in employment growth and the housing market across the country, the government needs to tread carefully when it comes to their attempts to achieve a balanced budget.

“Effectively, it amounts to a negative fiscal shock equivalent to about 2.5 per cent of GDP. That’s huge,” says Gelber.

“It’s all very well for the government to say it is ‘making room for the minerals boom’, but we need private spending to come through to take the place of reductions in public spending. And, apart from the minerals sector, that’s not happening yet.”

Rather than struggling to get the national deficit under control, Gelber says the government needs to look at investing more in “productivity-enhancing projects” and addressing the current infrastructure shortfall.

He points out what many have been talking about – the fact that we are experiencing a two-speed economy; with the resource sector and the regions that are geographically benefiting through economic growth, strong employment and investment (namely Brisbane and Perth) prospering, while many industries are feeling the negative impact that comes from the continuing strength of the Aussie dollar.

Gelber adds, “But the bulk of the economy, about 60 per cent, falls between the mining and trade-exposed industries, sheltered from the impact of the high dollar, but still languishing in the aftermath of the GFC. Some are doing well.”

No surprises that the ones who are still “doing well” include the banks, even as many of their business customers (particularly small businesses and those in service related industries) are struggling.

“Hence the weakness in Victoria, NSW, South Australia and Tasmania. And the new fiscal tightness is making it worse,” says Gelber.

According to Gelber it’s not just Aussie families who are exercising extreme caution when it comes to spending their pennies, preferring to remain in savings mode “just in case”, as more businesses that are not reeling in the big bucks from our resources boom choose to batten down the hatches and keep a close eye on their cashflow.

He says we have seen a rapid transformation in this country, from a nation of credit loving consumers to one full of cautionary savers and as a result, we are seeing a marked slowdown in the housing market.

“Owner occupiers are starting to come back, but investors are still sitting on the sidelines. Yields on housing investment are too low unless rents are augmented by capital growth,” says Gelber.

But as those of us who have invested through numerous economic and property cycles know, every cloud has a silver lining of some kind.

With fewer investors in the market and therefore less rental properties coming on line, the result will be another upswing driven by a growing housing shortage, according to Gelber.

For now though, all we can do is remain patient.

And for those of us who are old enough to know that these downturns never last forever, we are now being afforded the luxury of taking our time to mull over the amazing opportunities that abound in today’s quieter housing markets.

Remember the famous saying by Warren Buffet – “wealth is the transfer of money form the impatient to the patient.”

 

 



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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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