Spending on infrastructure projects is a major theme from governments all over the world. The projects are huge. There’s value in better roads and faster trains that go to more places.
And where does much of this value go? Into the price of the land, of course. Especially into the price of land whose owners benefit from better infrastructure.
Around the world, the scale is enormous and the benefits are massive.
One of the best examples from history was the railroad boom in the United States. In northern and midwestern states, companies built a vast rail network that connected every major city by 1860.
During the planning of routes, businessmen did what they could to have railroads pass near their properties.
As soon as the location for a new railroad was known to a select few, buyers would race to buy land in the area before it became public knowledge.
In the heavily settled areas of the midwestern corn belt during the second half of the 1800s, over 80% of farms were within five miles of a railroad. This allowed the shipment of grains and livestock to national and international markets.
Due to its central location, Chicago flourished as the biggest trading hub.
The US economy relied on farm income for a large part of GDP. When farmers did well, the nation did well.
China’s grand plans
Recently, massive global infrastructure projects have been announced by China. The ‘One Belt, One Road’ project aims to revive an ancient network of land and ocean routes — the silk trade routes.
The land-based projects are the belt. Roads and railways will be part of an infrastructure building boom all the way through Central Asia and up into Europe.
The overland ‘belt’ involves creating an economic and trade corridor. It promotes closer cooperation between member countries. The intention is to create a cohesive economic area by linking central Asian states to the Chinese economy.
The sea routes are the road. China’s southern provinces will connect to ports throughout south-east Asia and over to Africa.
A key aspect of the maritime ‘road’ is for China to develop and run shipping ports in the Indo-Pacific area. The idea is to provide China with sea access and economic benefit across the Indian Ocean.
Ports will also be built on both sides of the African continent. These will provide transport access for Chinese companies who have built mines to extract African minerals.
The sea road extends into Europe via Piraeus, Greece’s major port, which was bought by Chinese shipping group COSCO. This will allow direct access to the markets of Europe.
First announced by Chinese President Xi Jinping in 2013, the ‘One Belt, One Road’ initiative is truly forward-looking. The scale is enormous.
It’s hailed by Xi as ‘the project of the century.’
It will involve 65 countries, with a combined total population of 4.4 billion people. The regions have a 30% share of the global economy.
This will quickly grow when Chinese wealth is given better access to minerals. And when Chinese products find better access to global markets.
The numbers are staggering. There are $1.3 trillion of projects that have already started.
The plan is more than seven times larger than America’s Marshall Plan to rebuild Europe after the Second World War.
What about Australian infrastructure?
At the local level in Australia, infrastructure is built on a much smaller scale. But its importance to land values is still crucial.
Read the ads in the real estate section of any newspaper. Close to trains. Tick. Close to schools. Tick. Minutes from the city. Tick, tick, tick.
There has been a lot of recent talk about opening up the former defence site at Maribyrnong, an inner Melbourne suburb, for a housing project. The 127 hectare precinct could fit up to 6,000 new homes.
At the same time, the Victorian state government has shelved plans for a rail link to Melbourne airport until the new inner-city rail tunnel is complete.
It’s interesting to note that the federal government has waded into the argument. Prime Minister Malcolm Turnbull suggests a rail link to Melbourne airport could be built without state funding. He wishes to explore alternative viable funding options.
And here’s the rub. Canberra is keen for the new airport rail link to run through the proposed housing estate at the former Maribyrnong defence site. It would also service the nearby Highpoint Shopping Centre.
With the stroke of a government pen, all of those new houses would now be that much more expensive to buy.
At Cycles, Trends and Forecasts, Phil Anderson has used his Grand Cycle Theory to teach readers how to predict developments in the global economy. He shows us how major infrastructure projects and new technology are the drivers of the cycle.
He understands how the game is played.
The Grand Cycle Theory is the perfect tool for forecasting market moves, especially real estate and global stock markets.
Phil has summed it up in a picture that’s worth a thousand words:
This removes any niggle of doubt about property moving in cycles.
Phil has used his theory to accurately predict market moves time and time again.
It flies in the face of conventional wisdom on Collins Street and Wall Street.
Imagine the benefit of having such foresight. Back in 2004, Phil warned of the ‘winner’s curse’ phase about to unfold. This proved to be the final couple of years into the peak of the cycle.
It’s when real estate buyers leapfrog each other, chasing higher and higher prices into the peak, as in 2007. All of it financed by reckless lending from the banks. Maids were able to borrow $1 million, without any hope of being able to repay.
Importantly, Phil also forecast the best time for buyers to step back into the market to buy real estate and stocks. Years ahead of the event, he said real estate prices would bottom out in 2010/2011. And the stock market would bottom out a year or two beforehand.
History proves this foresight was remarkable.
Go here for a brand new video demonstration of how you can use the theory to predict market moves.
Lead Researcher, Cycles, Trends & Forecasts