Commercial Property & The Economy … It’s Purely a Confidence Issue!

The TrueEconomic Picture

THE REST of the world looks upon Australia with envy. And you only need to scan these graphs to understand why.

It all comes down to a feeling of comparative well-being.

Australians have had it so good, for so long … that the current slower pace somehow makes us feel gloomy — because it’s simply “not normal”.

Meanwhile, most other countries just wish they were in our position.

Our Current State of Affairs

The RBA’s rate reductions down to the present 3% level have helped improve the finances for homeowners. But this has mainly translated into higher savings, or the paying down of mortgages.

Apart from Melbourne, house prices have increased in each capital city; and car sales have surged by 10.9%, over the past year.

On the other hand, many businesses are still feeling the pinch — having seen far less of these rate reductions passed on by their banks. This could affect expansion plans and maybe employment levels, down the track.

As a result, some people remain nervous about their jobs.

Even so, on the latest figures, Australia’s unemployment level has just fallen to 5.2%. And despite some recent business closures, there has been an overall net gain in employment numbers.

The mining sector has been providing half of Australia’s growth. And according to some pundits has now seemingly peaked. However, as China rekindles its growth in 2013 (see earlier article), much of this growth and investment should continue — in volume at least, if not at the same profit margin.

Labor Needs to Show some Leadership

Because Australia’s fundamentals remain strong … it all comes down to an issue of Confidence.

Therefore, trying to achieve a budget surplus is the last thing Wayne Swan should be attempting. Instead, Labor needs to initiate a massive, nation-wide infrastructure program.

Traditionally, this would be undertaken through issuing long-term government bonds, at what are currently the lowest borrowing rates we’ve seen.

Alternatively, the Superannuation Industry has indicated it is prepared to embark upon such an infrastructure program — provided the government would underwrite automatic member redemptions going forward.

Clearly, this option would involve some potential liability for the government — but it also means there would be no upfront borrowing required.

Bottom Line: In the past week, the government has been hedging its bets on achieving a budget surplus. So perhaps you will start to see a dose of reality emerging.

Either way, the huge pent-up level of community savings is just sitting there, poised ready to be spent — once the spark of confidence returns.

Therefore, as a Commercial property investor you are making a big mistake, if you try to pick the bottom of the market. Because already, certain sectors in several capital cities are already starting to move.

As momentum picks up, your present available choices will quickly decline. And then, you will need to compete on price to secure the Commercial property you want.


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