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Mining Boom assures property profits

By now you know we have a 2 speed economy in Australia, with one leg being driven by our mining boom.

But what if this falters – what will it mean to our economy and the property markets and you and me as property investors?

According to a report by Standard & Poor’s, it could take only a modest decline in the growth of China’s economy for Australian property prices to falter.However a recent Long Term Forecast Update BIS Shrapnel’s gives us some reassurance and confirms the rapid expansion of minerals-related investment that is providing a significant boost to the Australian economy.

“These projects are locked in, and will occur irrespective of events in Europe,” the report says.

It says ongoing strong growth in China and the rest of emerging Asia will continue to support minerals prices and the Australian economy more generally.

“The engineering construction industry is benefiting most from this activity, but sections of other industries are as well, including some areas of manufacturing, transport, wholesale trade, accommodation, and professional and business services” says Tim Hampton, BIS Shrapnel senior economist.

What about the Australian dollar?

Acording to the report, the flip side of the minerals boom is that record high commodity prices, coupled with the poor state of many economies offshore, has seen the Australian dollar rise to post-float highs in nominal terms and near record levels in real terms.

Hampton says the tourism and international education industries and many parts of the manufacturing industry have suffered as the high Australian dollar has eroded competitiveness at the same time weak western economies are holding back foreign demand for goods and services.

“Other industries are also suffering due to the high Australian dollar, including retail trade as Australian households spend more of their money offshore. Many firms in professional and business services are also under pressure because the high Australian dollar is encouraging firms to take these activities offshore,” Hampton says.

The report says business investment outside the mining industry has been weak as a result of businesses deleveraging and maintaining a cost-containment/cash-preservation focus since the global financial crisis.

It says negative news coming out of Europe and the United States has weighed heavily on consumer and business confidence.

The report says private dwelling and non-dwelling building activity has been low and that this under-investment creates pent up demand. It says this will drive activity from late 2012, provided funding is available and consumer and business confidence does not take another hit.

My thoughts:

It’s not really a resources boom that we’re experiencing. A boom suggests a run that will end in the short term.

We’re really entering a new stage for the Australian economy – a significant long-term structural change. One that could see Australia become the major source of resources to the developing Asian region and the premier LNG supplier to the world.

This will lead to massive infrastructure spending, population growth, wealth to the nation and wages growth.

What about property?

Sure some mining towns will boom, but if you’ve been following my blogs you’ll know I would rather feed off the mining boom by investing in the capital cities that will benefit from this boom, rather than investing in the mining towns directly.

In particular Brisbane and Perth is where many mining companies will have their offices, employing thousands of people who will earn good wages and rent and buy accommodation. They will also spend their wages in stores and boost the local economy.

In my opinion, the diverse demographics and economies of the major capital cities will offer better investment prospects than the mining towns.

 



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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


'Mining Boom assures property profits' have 2 comments

  1. Avatar for Property Update

    April 19, 2012 @ 11:12 am Margaret Fort

    Michael, as always a respected and insightful view of the property direction.
    Particularly in Perth.
    Thank you, Margaret Fort

    Reply


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