My understanding of the widely reported publication from
Delloitte access economics is they have made an assessment on when they expect
the continual flow of new project announcements to dissipate within a couple of
years. This view is synonymous with what we are also hearing from some of the
mining giants like BHP and Rio Tinto.
What the widespread publications of this report outline to
me, is that as investors, we need to read the facts, not the headlines and also
look beyond the article too. I have had a number of comments made to me saying “did
you read? the boom is over”! My response is usually accompanied by a chuckle as
I realize how people continue to take small, misconstrued headlines and pieces
of information and make decisions based on them.
If for a moment we thought that the continued commitment of multi-billion
dollar capital expenditure projects was going to be around forever, we really weren’t
thinking into things too much. The level of financial commitment by large,
medium and small mining companies over the last couple of years has been
unprecedented and will continue to be for another two years let’s say. Should
some proposed projects not be committed to like the Olympic Dam mine in South
Australia, or the $20 billion construction of the outer harbour at Port
Headland from BHP we should not start to say the boom is over.
What the boom is to an economist isn’t exactly what a boom
is to a property investor. The economists are counting the continued financial
capital expenditure commitment as their “boom”. As property investors our “boom”
is seeing these large projects come to fruition and putting long term demand on
housing in regional hubs throughout Australia. That “boom” is long term as a
result of the short term “boom” that the economists look at.
There are three main reasons that it was always expected the
boom in commitments was short lived:
1 1. Access to capital funds and exposure from the
funding market to one industry.
2 2. Access to skilled workforces to bring the large
amount of projects to fruition within a relatively short time frame.
3 3. Increased costs of construction due to the boom
in demand for labour and materials in a relatively short time frame.
I believe that in 5 to 6 years we may see another boom in
capital commitments. This will be after the above three factors have all eased
a little bit. In the meantime, for property investors, your time frame must
remain long term and your desire to jump in with the crowd must be restrained otherwise people will pay above the odds and
will not see good yields on their property or good capital growth, so you may
as well invest in a capital city.
My next blog will be about investors hype and the danger
everyone is putting their selves into with the tunnel vision a lot of investors
seem to invest with. Property investing is about strategy, not just buying
property. If you really want to be successful at this, it is time to be smart.
Until next time, good luck with your property investing!
Josh
