2009: A great year for Australian Landlords? (Newsletter 13/1/2009)

With the Banking sector and financial markets in turmoil, people have been asking, what will happen to Australian property?

The flight to quality is on, as people liquidate out of the money markets. Trillions and trillions of dollars have “moved” into cash.

At some stage, this cash will look for a home.

After the World Stock market crash of October 1987, when the Dow Jones and Australian All Ordinaries plummeted, WHY did Australian property prices surge in the 2 to 3 years immediately following the stock crash?

First, cash needs a home. Many people who have been panicked, and burnt, will feel very reluctant to reinvest in similar financial instruments, and stock markets again. At least in the short term.

As the flight to safety continues, many people who chased high returns move back to investment fundamentals and for many people that means property.

Then there is a chronic shortage of construction and new houses being built all around Australia. THIS IS CRITCIAL, and is little understood by most people. They may have "heard” about it, but have not given a minute’s thought about how they may be able to benefit from this situation.

In the USA for example, there are reports that literally millions of homes have been oversupplied.

Australia simply doesn't have suburbs full of empty houses awaiting mortgagee sales. Instead we are not building enough houses. Not nearly enough.

From a supply and demand perspective America was and is over-built - there are just way too many houses. In Australia it's the exact opposite - we are not building enough houses and now our occupancy rates for rental properties have climbed to record highs in the major cities, particularly Sydney and Melbourne.

Fourth, we have a large population growth, mostly through huge and continuing migration to Australia. In calendar year 2007, over 400,000 people migrated to Australia. In 2008 it is expected that the figure when announced will be similar.

But where will all these people live?

When you have the biggest population growth in 200 years happening at the same time as the largest shortage of homes being built in 200 years, combined with possibly the lowest interest rates seen in decades, something big will happen.

Putting this all together means that we are currently starting to see rental increases, and if you already own Australian property, then 2009 will be a great year to be an Australian landlord as we come into the Forthcoming Great Australian Rental Boom.

This will continue for some time, maybe even for years to come.

So, is 2009 actually a good time to invest with the financial turmoil?

History is full of times when people said “now is not a good time.” Yet in many cases, they were proven wrong. What is known already is that hundreds of new apartment and townhouse projects have already been shelved, as Developers have struggled with getting mezzanine and construction finance.

This is an example of how investors will directly benefit from the Subprime crisis, as fewer projects mean less supply.

If you can secure a prime property today on just 10% initial deposit, at a reasonable price, in a prime rental location, that would have to seem to be a good real estate play for the future.

And who would bet against prices not being substantially higher in 4 years than today?

www.australianpropertyinvestor.com