Last October we ran a series of seminars warning of a possible slow down in the Stock Markets around the world.
Sometimes you would prefer to be wrong, but as I write this article markets have come off some 10-15% since October and with the possibility of maybe even more pain to come.
This is mainly triggered by an excessive oil price and weakening US Economy still battered from the Sub Prime Mortgage fallout.
There is a lot of concerns on the horizon, however the Australian property market continues to show resilience and may be a safe haven in this stormy period.
There is no doubt that Australia will be affected by all that goes on around the world and we can see our share market following the trends internationally.
Interest rates may be the winner, as the Reserve Bank of Australia may be forced to reconsider it recent high rate strategy to slow growth and inflation, and adopt a more protective stance to ensure Australia does not follow the slow down being experienced in the US.
This will be welcome news to all Australian property owners and may also help in correcting the currency which continues to remain strong, at least for now.
When we look back in history, it is often the best judge of what may happen in the future, and traditionally periods of high growth in the stock market have kept people from investing in property as they sought after the quicker and potentially more lucrative gains on offer in the stock market.
When this period ends, money usually stars moving back into the safer investment category of property and a period of sustained growth can be expected. This is particularly true for Australian property which has proved itself to be one of the worlds safest markets over a long period of time.
I believe this will once again occur, but possibly at a greater level than in the past for a number of reasons.
- The gains over the past two years in the stock market have been substantial and the release of this capital will provide far greater investable funds than ever before. This could be a very large financial wave with the power to push markets further than usual.
- The property markets all over Australia are undersupplied on supply of new housing and also rental property. This is a result of the strong incoming migration (which topped 140,000 in the year to June 2007) and increasing affluence of local Australians.
This is unlikely to be remedied in the near future as there is a significant lag time between the concept of creating supply and the actual delivery once building is completed.
It is further complicated by the delays in gaining building approvals and rezoning which lengthens the time considerably. The new Rudd Government promised to address this in his election campaign, but to date no real change has occurred.
- Personal tax has been reduced significantly in Australia, which gives the community the best chance to insulate against a slowing economy and also gives us the personal power to stimulate activity.
- Even though Global growth is likely to slow in the coming years as a result of the financial happenings we now face, this will likely have a less adverse effect on Australia than any other time in history.
This is because there is now a significant local population creating natural internal demand at an increasing rate.
Our historical dependence on exporting and mining is much less than before, and the fact is that even though mining has been strong in the past few years, it has been at a time when the Australian dollar has been at record highs, so the benefit to Australia was not as great as it could potentially have been.
Mining may slow, but a possible correction in the dollar could mean the net effect is very minor on the Australian economy.
In all, we are about to enter a very interesting phase in global financial markets as speculation and opportunity is replaced with reality and conservatism.
Australia stands above many other markets when you look at the fundamentals, and the efforts of the Howard Government in reducing personal tax rates and clearing all government debt will allow the Rudd Government to manage all possible eventualities that come their way and keep Australia in good stead.
