Why Car Parks and Elevators Discredit the Property Bears
Pity all the property bears that keep calling for a collapse here in Australia (and everywhere else).
They’re an unimaginative bunch.
They seem to think any uptick in interest rates will kill off the entire Australian economy.
They might like to take a look around at the developments occurring outside this narrow focus.
They would see why property can keep going up. It’s right in front of their face — literally. Just look up.
The reason is that buildings can keep going higher…
The sky’s the limit for profit potential
You don’t have to believe me on this. One man that ought to know is a guy called Tomio Pikhala. He works for one of the world’s premier elevator companies called KONE, based in Finland.
You’ve probably never put much thought into elevators. But the higher they can go, the higher the building can go.
Tomio says we can expect more tall buildings to go up around the world as urbanisation drives cities to squeeze more people into the same amount of space.
A taller building means more yield that can be earned. That will capitalise into higher real estate values. Let me tell you: there’s a lot of tall buildings going up in Australia right now.
We can go sideways here too. The Australian Financial Review reports that a company called ‘Parkd’ has now closed its $6 million IPO early after being two times oversubscribed.
That means fund managers were basically throwing money at them.
‘Oversubscribed’ means not all of them got the amount of shares they were after. Keep an eye on this stock for when it finally hits the stock market in early December.
Why the excitement?
Parkd is a company that builds prefabricated car parks. Here’s the exciting bit. Parkd can build a car park in way less time and 35% less the cost than a standard one.
It’s ‘easy to get rid of’ according to Parkd’s managing director, when/if a landowner decides to (re)develop a site or change its use.
Parkd’s first commercial job is for a car dealership. The new fit out will allow the dealership to double the volume of cars it keeps on site.
You can see the implication wherever Parkd is brought in.
If a site can be used to earn more money at less cost, it becomes more valuable, equating to higher property values again.
Rental metrics are being upended across Australia
And of course we have AirBnB in play across Australia now as well. This is upending the traditional rental metrics in hot spot locations like Bondi Beach.
I got an angry letter the last time I mentioned AirBnB as a factor pushing real estate prices higher. The gentleman got steamed up about it.
From memory it was because of the noise AirBnB guests made in a Melbourne apartment (presumably his) tower.
Yet Australia is a little bit bigger than Docklands in Melbourne. People are using AirBnB to make money all over the country.
One of those is about to be my brother. He owns a lovely home down on the Mornington Peninsula. He’s clearing out the family for summer and going camping while they rent the place out.
The house is right near the beach and will earn something like $3000 per week.
I’m actually renting a house down that way for Christmas to change things up a bit this year.
Of course, there are costs. But with potential numbers like that my brother is hardly alone here.
Perth hotels are feeling this over in Western Australia. Their occupancy rates have fallen as more AirBnB listings come online.
You might also like to keep an eye on stock Buddy Platform [ASX: BUD].
It just raised $23 million to continue expanding globally. The company’s main product is an energy monitoring system that Buddy calls a ‘Fitbit for buildings’.
Building owners can cut their energy bills by between 10 to 20% using this system, according to the company.
This obviously brings down the holding/running costs down. That can feed back into real estate values too.
I don’t buy for a moment the idea that property is going to crash the Australian economy anytime soon.
The same must be true for Abacus Property Group [ASX: ABP].
This billion dollar property group is working with an international investment group — unnamed — to lend more money to developers.
They’re another group pushing into a space that the big four banks have retreated from.
As I’ve written before, more credit here should equal higher prices too.
I’m no shrill for the property industry. I’m a stock picker. But if you’re thinking that a big collapse is coming in property that will take down your share portfolio, you might like to think it over a bit more.
Editor, The Daily Reckoning Australia
PUBLISHER’S NOTE: One of the biggest questions we get in the mailbag here at the DR is about our ‘party line’.
That is, why don’t we have one?
You’ll often find that our writers and analysts have vastly differing view on the markets, the economy, the dangers, the threats and the opportunities.
This isn’t an accident. We work this way quite on purpose.
For one, no one idea is sacred.
Rather, each idea needs scrutiny and questioning to see how it stands up.
Bad ideas quickly crumble.
And so they should!
But you only learn to separate the bad ideas from the good with great research and thought.
That’s why we don’t have a party line.
As long as they are well researched and authentic, we encourage and foster all points of view, and we let you, our reader, decide which ideas you feel most aligned with and convinced by.
For example, Callum is inherently optimistic about the near future of the markets…and is excited by the developments in the blockchain and cryptocurrencies. He makes a compelling case, which you can read here.
Jim Rickards on the other hand is deeply sceptical about these developments.
And you’ll find out why tomorrow.
May the best idea win!