Thursday, 09 February 2012

New Year’s Resolutions Part 1: The Economy

 

Understanding More about the Property Growth Drivers.

Australia is in an extraordinary period with forecasts of resource sector spending collected by the Australia Bureau of Statistics and reported by the Reserve Bank, to rise by 50% (i).  This huge increase is on top of levels that are already making history.


Many property investors want a risk free investment with exposure to extraordinary population growth and mining company rental payments associated with a new influx of resource workers.  The words low risk and small towns with single economies (and really the only tenant) just don’t go together!  


The risks are high; 

  • Company activity is based on commodity prices and most of us don’t monitor these or the factors that drive them; 
  • Companies have internal policies on housing and these can change without notice creating grief for those without long leases; and 
  • Once the boom is over there is no resales market so do we have a plan to get out and how do we assess that choice objectively?

 

Many Australian resource projects have been in exploration phase where a small number of men in white vans drill holes all over the country side and there is limited capital investment.  However the newspapers start to trumpet the opportunity early and some of us get excited.  Rather than acting on our excitement without a plan it would be wiser to be thinking more about sustainable investment, when we will need the results and what fits.


Following sufficient exploration and evaluation planning permission is sought.  Property investors need to look for the appropriate Government approvals, and the company’s commitment to the capital investment in extraction and often shipping.  In this phase large amounts of capital are invested in mining plant and processing machinery and large numbers of staff are required to build the facilities.


To reduce risk further we can study where these workers house their families as that is where they will take their spending power and we can target the family that wants to live next door.  In WA it has been predominantly Perth and in Northern Queensland Townsville.  The Hunter Valley on the other hand has the choice to live in their existing communities and commute by road.  Olympic Dam in SA has created more diverse wealth with the fly in fly out community coming from Melbourne, Sydney and Perth as well as Adelaide.  


To appreciate the factors driving wealth creation through property is vital, to do the research required to create a plan and select opportunities is more complex.  Exposure to resources boom property growth can be more sustainable and suit all risk profiles with the appropriate strategy, especially the set and forget investors.

 


 

i  http://www.rba.gov.au/speeches/2011/sp-gov-230211.html

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