Property bright spot in bleak forecast

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Housing sector investment hits one of the few positive notes in a new forecast report on what the future holds for the Australian economy.
According to BIS Shrapnel’s Long Term Forecast 2014-2029 report, which was released today [Wednesday], the country’s economy is set for its weakest four-year period since the early 1990s-recession.
While GDP will average 3% annually, thanks to strong mining production and exports, soft employment growth [of just 668,000 jobs over the next four years] will act to stymie domestic demand.
BIS Shrapnel senior economist Richard Robinson said there will be a slow, difficult transition from an economy driven by a huge resources construction boom back to a balanced economy.
“Also, the high dollar undermined the competitiveness of domestic trade-exposed industry, inducing structural change as we tilted the economy towards servicing high levels of mining investment.”
But the resources boom has now peaked, and its decline over the next four years will be a major negative to growth – although increased mining output and exports flowing from the boom will act to offset this slightly.
Robinson said the next set of growth drivers, which will take over from mining investment and rebalance the economy, will be slow to come through.
Australia’s stubbornly high dollar is acting as a major roadblock to a pickup in growth – because it needs to fall below US 80 cents to benefit the economy, he added.
“It will be tightening capacity, as the dollar gradually falls, and improved confidence that drives a recovery in non-mining business investment. But that, we believe, is at least 12 to 18 months away.”
In the interim, it is housing investment and net exports which will act as the key drivers of real GDP growth.
Robinson said the long-awaited recovery in dwelling investment is now entrenched, after a delay due to weak housing market sentiment and excessive caution by investors.
“The expectation of low interest rates for an extended period, combined with a substantial deficiency of residential stock, is driving a solid increase in dwellings building.”
While this will help build momentum, the recovery will not be uniform with sizeable stock deficiencies set to drive certain markets – particularly in parts of Queensland and New South Wales.
However, the next four years will be tough largely due to a cumulative 40%  decline in resources investment, Robinson said.
“Put simply, there will not be enough non-mining investment to replace the loss of mining investment over the next four years… Loss of jobs associated with mining investment will keep employment growth subdued.”
On a brighter note, the report forecasts interest rates to remain at current low levels over 2014/15, with only modest rate rises in the next cycle. 
Further, it predicts strong growth will resume later this decade, with GDP and domestic demand growth lifting to around 3.5% in 2018/19 and strengthening through to early next decade.
The expected lower dollar will be a key element of that, with another round of mining projects, further public investment and a renewed upturn in housing and non-dwelling building also contributing.  

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  • barbara says on 28/08/2014 11:16:48 AM

    I believe the housing boom is created through sales to the Chinese. China is moving towards a depression, which will almost eradicate any overseas investment. I believe Australian property markets are in a bubble and have been for 30 years; there will be a dramatic correction in 2015, when Chinese buyers evaporate, which will reduce the value of property to its real level. Banks are cannibalistic; they survive on housing loans and are telling the RBA not to tell the public the truth. Those with huge housing loans will find they will lose their homes as Australian jobs evaporate and property values diminish. You would be wise to refrain from any bank loan for the next four years, investment or not.

  • Sam says on 28/08/2014 01:03:53 PM

    Completely agree barbara, the next 5 years ahead will be tough, I dare say we're headed for a lost decade much like 90's japan marked by low growth and high unemployment. Mining is winding down to low levels of activity (its historical average) and theres no industry left to takes its place as an economic driver. The suggestion the house price growth will drive GDP is absurd, countries don't get rich from property speculation and unsustainably increasing debt.

    I think the best anyone can hope for is stagnant price growth after inflation is taken into account

  • Me says on 28/08/2014 01:12:30 PM

    The Australian Housing Market is not one single market place. It is a mix of many markets in both capital cities and regional areas etc. Every market has its own particular factors that drive and affect the cyclical price fluctuation ie tourism, mining, education, government etc. This being fact, then it really does depend how the influencing factors are driving the market in which you either live or invest in. For that reason it is important to buy in multiple areas that are driven by multiple financial factors ie don't invest in a single industry town such as mining. To state that Chinese Investors have the capacity to alter the price of real estate in Australia as a whole, is either a very small and narrow view of the Australian Real Estate Market, or shows a complete lack of understanding of fundamental economics. There has been many times in Australia's history where certain areas have only grown during poor world economic times due to overseas investment. We saw this in the 1980's in certain parts of Country NSW when selling our best breeding rams to Saudi Arabia was big business. Most other places in NSW were suffering and this part of Australia was riding high on the sheeps' back! And I can make this list even longer. Everything is cyclical! This includes real estate, world economies and fashion. So mining has suffered a drop and China is not buying so much of our coal, iron et al. When the dollar drops tourism will take off again and another area in Australia will have its time in the economic spotlight. Work out where you are financially and how you fit into this cycle and go with the flow - or against it if that's your thing! But more importantly plan for the future. This is where you can have more influence on your life than if the RBA drops or lifts rates or the house next door to you is bought by someone from China!

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