Why Aussie Property is Unlikely to Collapse Anytime Soon

We hear so much, about how high Australian property prices are. That Australia has not had a recession in two decades and one is due. That ‘the lucky country’ has to turn down soon.

The latest example comes from a Sydney based asset manager. Philip Parker, the chairman of Sydney based Altair Asset Management, has advised clients to sell everything, citing an impending collapse in property and share markets. Altair is handing investors back their cash.

It reminds me of a similar call the Royal Band of Scotland made back in January 2016. We know how well that went!

Altair did give clients the choice of transferring their shares to other managers, to simply sell as advised.

95% of clients took the latter decision to cash up.

Mr Parker cites the east coast property bubble, China debt and an overvalued Australian equity market as the reason to move out of equities.

He saw little alternative but to hand back the cash at such an overvalued and dangerous time in the cycle.

I just wonder what he will tell those same investors a year from now? Something to watch next year.

We aren’t alone

What you have to understand is that Australia does not operate in isolation from the rest of the world.

And since Federation and before, Australia has never entered a recession without the US having done so first.

Presently the US economy is in reasonably good shape, overall. The April job report noted strong employment gains and a further decline in the unemployment rate. Industrial production also recorded the largest expansion in more than three years in April. With data still strong, GDP growth is poised to come in stronger in the next quarter, despite events in Washington.

The same can be said for much of the rest of the world. The OECD says the global economic outlook is improving. It revised up its forecasts for global growth rates to 3.5% in 2017 and 3.6% in 2018.

With so much attention on the US, UK and Europe, often what’s happening in Asia gets overlooked.

Today I relay a few news items that I’ve come across, to give a feel for what’s happening in the region.

Hong Kong’s largest property developer by market value, Sun Hung Kai Properties Limited [HK:0016], saw a 57% surge in profit this year, as sales benefited from a surging home market.

Profit climbed to HK$14.6 billion for the six months to December 31, compared with HK$9.3 billion a year earlier.

This sort of developer activity is not indicating recession any time soon for Hong Kong and surrounding areas.

To Indonesia. Their largest cement producer, Semen Indonesia, has just earmarked IDR 6 trillion — US$449 million — to finance expansion in 2017, so it can meet the Indonesian government demands for nationwide infrastructure development.

The company has plans to build further cement plants to increase production, in addition to the two already under construction.

Indonesia has 225 projects planned in 13 sectors, especially railroads and toll roads, as strategic priorities to complete over the next decade.

It dwarfs anything Australia has planned.

And it creates significant land speculation in all the new areas involved.

This tells you a lot about what’s going on in the world. And again it doesn’t say ‘collapse coming’.

Major developer GuocoLand Ltd [SGX:F17], listed in Singapore, is forming strategic partnerships to expand into the British and Australian markets.

That’s interesting because we hear continually about overpriced Australian and UK property markets.

Yet listed developers all over the world are still opening up offices in Australia and can’t wait to start developments here.

Shares in the property development and investment firm Hong Fok Corporation [SGX:H30], also listed in Singapore, broke in to 52 week highs in March.

The company is engaged in retail and residential property development, and owns a string of prime real estate in Singapore.

The move didn’t happen on any specific news, but the joint managing directors have been quietly buying up shares in their company through on market buying.

It would be hard to see Singapore directors doing this if they didn’t see improved outlook for the company, and an even better outlook going forward.

Perhaps then it’s no surprise Singapore’s manufacturing output is expanding faster than expected on electronics demand. Which is bullish for growth in the broader Singapore economy.

Demand for electronics and also for semiconductor usage are boosting earnings for Asian stocks all across the board.

Growth in semiconductor usage is also behind a 42% surge in Malaysian technology stocks, sending them into 10 year highs.

It all ties in with what we are seeing almost everywhere in the rest of the world.

Nothing here is signalling a recession in the next 12 months.

And what’s happening in Southeast Asia is particularly relevant to Australian property.

Australian property is extensively advertised in the entire Southeast Asian region.

Property spruikers regularly run classes teaching Southeast Asian residents how to successfully buy Australian property.

While Southeast Asia remains so bullish, it’s exceedingly unlikely that Australian property prices are going to collapse anytime soon.

To really know when the next property collapse will occur, go here.


Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia