Dear Reader,
Your first drink is always good. The second is usually very good.
I feel the same way about Melbourne skyscrapers.
They tell me that the ‘big property collapse’ everyone fears isn’t going to happen.
Why do you care?
You have a massive opportunity to ‘buy the dip’ in Australian property over the next 12 months.
It’s quite fair to say it could be the buying opportunity of a lifetime.
You might recall back on 24 April I wrote in Profit Watch that the Victorian State Government gave approval for a record-tall skyscraper to go up in Melbourne.
Now we have another, second, ‘big one’ to get built too.
From The Age…
‘V-Leader’s development joins a list of major planning projects likely to be accelerated by the state government’s Building Victoria’s Recovery Taskforce, set up to bolster the industry during the coronavirus crisis over the short, medium and long term.’
This new building is going to be ‘mixed use’. There will be office space and a hotel.
Think about that for a moment. Almost every hotel and office around the country is empty.
And we have a developer prepared to put up $500 million to get this built.
It tells me two things…
Aussie Property Expert’s Bold Prediction for 2026. Discover More.
The next Great Depression? I don’t think so
One is that the market is already looking beyond COVID-19 to the world as it looks out to 2025.
The second is there is plenty of money around.
There are few Aussie banks lending freely at the moment. They’re conserving cash to deal with the problems they have now.
And yet we have seen two skyscrapers get the go ahead in the space of a month.
Financing doesn’t appear to be a problem for the big players.
Perhaps the biggest problem in the financial world is how much cash is looking for a home.
Bonds yield nothing. There are few big growth stories in the stock market currently. Bitcoin is too small for the massive funds.
And this building boom is government sanctioned. They want investors and developers to get going. They say so themselves!
Get it? They’ll ‘OK’ as much as they can, and as fast as they can, to get the economy moving.
There’s a saying in stocks: ‘Don’t fight the Fed.’
We can apply a similar sentiment to governments and property right now.
They’re going to unleash a tidal wave of government and private spending to prop up the economy and real estate market.
We don’t have to have an opinion about it. Just surf it while it’s there.
Now, property cycles move in long swings. It’s not going to take off tomorrow.
But all the spending announcements, tax relief and pay subsidies give investors and developers the confidence to know the floor is unlikely to collapse beneath them.
Once the COVID-19 bridge is crossed, the world and economy will get moving again.
Plans and projects initiated now will find a ready market when they’re completed in a few years’ time.
It’s not as if anyone is never going to sleep in a hotel again.
Here’s something else…
Check out the clue here
I’m sure you’ve heard about job losses, and residential property prices potentially falling in a big way.
Here’s something people will point out…
Aussie farmland is soaring.
Western Australian land values were a standout last year in the agricultural sector. They rose 28%.
There’s a reason I bring it up. The banks with exposure here are unlikely to have bad debts brew in this sector.
That helps when other parts of their portfolio are under stress.
The second is that rising agricultural land values suggest high prices and growing incomes in the farming sector.
That means there’s a clear component of the economy doing well, and likely to continue so regardless of COVID-19.
Commodity prices staying relatively buoyant hardly suggests a brewing depression.
It’s also worth noting something else.
The international price of LNG is currently taking a massive kick in the bollocks. That hurts firms producing it.
But it’s bringing down the very high cost of energy for east coast Australia.
That’s good news for consumers…like you and me. Petrol is also astonishingly cheap.
All this cut costs.
Once we can return the economy to something close to normal activity, I suspect we’ll find a very low cost and sturdy base for the next expansion to begin.
Boom today? No. Boom brewing? We can see it forming already.
Best wishes,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.
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