By now you know we have a “boom and gloom” economy in Australia, with one leg being driven by mining. But what if this falters – what will it mean to our economy, the property markets, and you and me as property investors?
BY MICHAEL YARDNEY
The recent long-term forecast update by BIS Shrapnel should give us some reassurance, as it confirms the rapid expansion of minerals-related investment that’s 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 the ongoing strong growth in China and the rest of emerging Asia will continue to support minerals prices and our 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,” according to Tim Hampton, BIS Shrapnel’s senior economist.
What about the Australian dollar? According to the report, record high commodity prices coupled with the poor state of many economies abroad has seen our 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 areas of manufacturing, have suffered as the high 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 de-leveraging 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 also says private dwelling and non-dwelling building activity has been low and 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.
Here’s what I think:
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 us 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 for 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.
Rather than invest in regional mining towns I’d be investing in our two biggest mining towns – Brisbane and Perth.
This 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.
Michael Yardney is the director of Metropole Property Investment Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Investment Update blog