Aussie Property Cycle: Where I See the Big Profits in the Property Market
You don’t expect investment insights over beer after a round of golf.
But I was chatting with a few gents yesterday overlooking the bay at Mornington Golf Course.
The topic: The future of the office. One reason for the discussion is that home sales across the Mornington Peninsula are booming.
Remote working and a bucolic countryside lifestyle are now in range for a lot more Melburnians.
But is the office as dead as we all think? Probably not, according to my fellow golfers.
Two of them are project managers. There are aspects of the office that they miss.
I don’t have much to input on that front. I work alone, mostly.
Developments in the Australian Property Market
What I can tell you is that commercial property players are pushing ahead with new CBD towers anyway.
Here are two projects I’ve seen in the last week. Aussie property behemoth Stockland has plans for a $1.3 billion office tower in North Sydney.
What’s going to be inside? The ‘workplace of the future’, according to the marketing.
That future idea appears to be a kind of hybrid office where multiple companies or workers use the same space.
The big players obviously like the look of North Sydney. The Australian Financial Review reports that plans are also on the table for a ‘super-skinny’ tower that will be 33 storeys high and just over six metres wide. A taste of Hong Kong is coming to Sydney!
This is a natural consequence of the Australian tax system. We allow land values to escalate ever higher…and buildings must become narrower and taller.
This is not unique to the CBD districts. The average new land block in outer Melbourne is around 400 square metres.
And the big blocks in the established suburbs are being carved into two to make way for townhouses and units.
A friend said to me the other day on her one requirement for her house hunt: ‘A big backyard is a must!’
I told her to get on with it. Backyards are disappearing in Melbourne every day.
Why do you care? The above are signs that the Australian property cycle marches on. If you’re waiting for a crash, you’re likely to be sorely disappointed.
Here’s another reason we can expect Australian real estate to remain buoyant (and, by implication, the banks secure). Agriculture in Australia is booming!
Why so? High commodity prices, good weather, and low interest rates, according to Rabobank’s annual survey.
This trend is worth watching on the share market too. Perth-based property player PrimeWest is planning an agricultural real estate investment trust shortly.
There could also be strong returns for companies exposed to strong prices or holding valuable land.
I took a look at almond grower Select Harvests Ltd [ASX:SHV] the other week. It looks pretty cheap, based off its history anyway.
Almond prices took a hit during 2020 but they’re still profitable. The one catch with an agricultural company like Select is that you’re in the hands of the gods, weather wise.
The stock market is random enough without throwing in the weather as well. I’m still thinking about this idea. But it’s one you might want to explore further.
I can tell you one thing: If you’re buying stocks in this market you need plenty of conviction in the idea.
There’s volatility brewing as we head into 2021. The outlook from this point is beginning to look a lot murkier.
The Biden Presidency and stimulus plans are priced in by now. One of the notable moves last week was the lithium names getting a drubbing after their big run.
Momentum and outlook can only carry you so far, before the earnings have to catch up.
However, 2021 could prove very fruitful for picking up stocks you want to own long term — at a discount.
The inevitable sell-offs will be intimidating at the time — they always are. But if you do your homework you can buy confidently.
Over at Cycles, Trends & Forecasts I have a list of stocks to ‘accumulate’ over the next two years.
These are firms where it makes perfect sense to dollar cost average your way in.
The next 12 months will be choppy. But the big payoff will be in the years 2023 and 2024, as the investments these firms are making now become the earnings of the future.
If you want to surf the big ride of the Australian property cycle, call our customer service team on 1300 029 501 and join Cycles, Trends & Forecasts.
We told our subscribers to buy real estate in the depths of the COVID crisis. We were a lone voice. The forecasts for 2021 are now in the range of 10% capital growth.
This cycle knowledge is where the big profits are. But don’t take my word for it. Give it a go and decide for yourself!
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.