Sep 17 2018Add to Favorites
In the lead up to the 2019 Federal election, the questions are; what impact will each party have on Australia’s property values? The residential market appears to be at 2 o'clock, which affects each and every one of us who needs a roof over our heads. Just as importantly we need a growing economy, a place to invest our money, and fundamentally a government and community that provides support as we age. This last part, providing support to our aging population, is a key driver which we believe will ensure buoyancy in our residential housing market over the long term.
Australia’s housing market represents about $7.6 trillion in savings, with according to Core Logic, about $1.76 trillion in debt. Additionally, the commercial property market is worth about $0.97 trillion, bringing the total real estate market to a gross value of $8.57 trillion.
Whilst property commentary focuses on diminishing values of Sydney’s residential real estate, (according to Core Logic – 6% across the board) as a result of sentiment and the APRA and Royal Commission lending restrictions, the levers which will govern how far down pricing and sentiment will go, are political.
Despite the pullback in residential pricing across Sydney, MP Funds Management is positive on residential growth due to the basic fundamentals; increasing demand and restrictions on supply.
The primary driver of growth in our residential market is our need for strategic increases in immigration of skilled, tax-paying migrants in order to bolster the diminishing tax-payer base which is occurring as our population ages.
Having sufficient fiscal budget to care for our elderly and the people we love in our community, who are more vulnerable, is an absolute necessity if we want to maintain the quality of life that is so unique and valuable to Australia.
Labor is threatening to abolish negative gearing and the ramifications this will have for pricing and investors, and the overall market is concerning.
One of the key aspects that enabled Australia to fare the waters of the GFC was the record levels of immigration over the last 10 or so years.
Australia reached a population of 25million as of August this year, growing significantly faster than forecast by the ABS, 14% of our 25million are over the age of 65. The ABS forecasts that once our population hits 52 million, 25% of that 52 million will be over the age of 65 and requiring additional taxpayer support. What hasn’t been spoken about enough is that even if immigration stopped today, the top-heavy aging population issue would still be an issue. Our government doesn’t have enough money as it stands to support our future elderly and the younger population mass isn’t there to support the older.
Interestingly recent NSW government Treasury reports note that the dampening in the NSW housing market has meant c. $850m in lost stamp duty revenue to the government last financial year and forecasts government revenue losses of $1.5 billion per annum for the next four years, if the market declines in a similar manner to what it is at the moment.
With the by-election scheduled for October this year and Malcolm Turnbull withdrawing his participation from Wentworth, front-runner candidates are Karen Phelps - Independent, Tim Murray for Labor and David Sharma for the Liberals. The outcome of this by-election will no doubt be a foreshadow of the Federal election result next year.
Thankfully our new Prime Minister Scott Morrison is bringing care for our elderly into the public spotlight with a Royal Commission. With any luck, voters will start to understand what a critical issue this is to our long-term well-being as a nation.
Infrastructure NSW has already committed c. $85billion to new infrastructure to support the growth and QLD has committed c. $45 billion. We need more inflows of skilled taxpayers to bolster our government cash flow and we need more housing to accommodate the growth.
Australia has c. 10m houses to accommodate c. 25 million people, growing at c. half a million people a year. The government has recently kyboshed the western corridor precinct which was anticipated to provide c. 2600 new dwellings. Read more here.
Scott Morrison plans to reduce our national deficit from $18.2 billion to $14.5 billion by 2018-19 and have us in a comfortable surplus of $11 billion by 2020. This budget is reliant on in-flows of skilled, working tax-payers as the primary source of budget revenue is the collection of personal taxes. If there is not the wages growth to collect more taxes to pay our debts, we need more taxpayers, so that we can ensure a prosperous future and one where our loved ones are looked after.
MP Funds Management update 1st Oct 2019 and investment pipeline: MP Funds Management has completed its co-investment into the acquisition of a 52,000sqm office asset in Brisbane CBD, right opposite the railway and with 98% of rental income underpinned by government tenants.
MP Funds Management has provided investment funding for approximately $1.3b in unlisted real estate since 2013 and has provided an investment return of approximately 21% annually. Whilst MP Funds Management focuses on unlisted real estate, I am always fascinated by innovation and I personally will sometimes invest in other areas. Recently I caught up with the founder of a very clever new Australian – based app called Stake https://stake.com.auwhich is a Business-to-Consumer based platform that enables Aussies to get direct exposure to the USA equities market.
United States of America
In November 2014 we co-invested with another Manager into the acquisition of a 13-level North Sydney CBD office tower for a purchase price of $36.75m or $4,665 per sqm. A total of $19.5m equity was invested with a gearing ratio of 65%, debt was locked in at a rate of c.4% for the intended five-year investment period.
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