Another Clue Why Australian Property Market Will Go Higher
Yesterday we touched on the bright outlook for real estate over the next five years.
We got another little clue that credit is going to expand for property market transactions this morning as well.
What do we see? The Bank of Queensland has decided to chase ‘higher-risk’ customers in pursuit of profit growth and to compete against the Big Four banks.
Hello. This is exactly what we would expect to see right now. The government actively disabled the responsible lending laws to make this happen.
The Australian Property Market is bullish over the medium to longer term.
But we invest in the here and now. What are the signals about the economy today?
It can’t be too bad out there.
That’s going off retail spending anyway. The Australian Financial Review reported yesterday that consumers spent $30 billion in January.
That’s 11% above the same time last year, and the highest monthly figure since January 2015.
The market has been pricing this in for some time. Some retailers that have posted strong results include MotorCycle Holdings Ltd [ASX:MTO], Beacon Lighting Group Ltd [ASX:BLX] and Arb Corp Ltd [ASX:ARB].
Here’s some anecdotal evidence too. On Sunday I took the wife and kids to Chadstone Shopping Centre. This is Victoria’s biggest mall.
The place was packed. A car park was hard to find.
I’m sure you’ve heard plenty of people declare retail trade dead as Amazon and online sales eat the market. But there was an interesting story reported a few weeks ago in regards to the future of shopping malls.
It was this from the Australian Financial Review:
‘As online sales soar and account for a growing proportion of total retail spending, landlords are banging the drum for rents to include a proportion of e-commerce sales.
‘Their argument is twofold — retailers’ bricks and mortar presence helps drive online shoppers to their e-commerce sites, and a growing portion of online sales are fulfilled or collected from stores or returned to stores.’
Where this goes in the short term I can’t tell you. However, there is a direct link between this developing and retail REITs delivering capital growth over the long term.
That’s because this is a direct way the REITs can start growing their earnings again.
Much is made of the REITS and their yield, and, naturally, the impact that interest rate movements have on this.
However, these are still businesses that must grow their revenues to fund their payouts. If they can do this well, then the yield will take care of itself.
They know it too.
The Australian reported the other week that the CEO of Scentre Group (think Westfield) is evolving the malls to possibly include ‘education centres, more co-working facilities and property development and management services for big retail investors.’
All these are good signs to me. The world changes so REITs can change alongside it.
That puts some of them in an interesting spotlight from a valuation perspective. Many of the REITs have some way to go to reclaim their former highs.
The outlook for retail can’t be too bad either with the ASX about to shower dividends across the country.
Forecast payouts for the financial year are set to be $73.3 billion. We know that iron ore miners are making astonishing profits.
But are you aware that commodity prices are starting to look very bullish? Copper, oil, zinc — just for a taste — are continuing to press into fresh highs.
It’s hard not to see this as bullish for the ASX in the medium term.
Foreign investors, for example, who want exposure to commodity stocks know to come looking here when the boom really gets going. Right now they’d get a second kick from the rising Aussie dollar too.
Rising commodity prices can stoke more dividend payouts next year and a concurrent rise in capital expenditure.
A mining services stock like Imdex Ltd [ASX:IMD] is a good one to follow here. Their business grows as copper and gold miners spend to go find more deposits.
I find it very hard to be super bearish with the current outlook. Down days are for acquiring stocks you want to own long term. At least they are for me.
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.