Skyscraper Hint: Property Cycle to Reassert Up — Another Property Boom

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Skyscrapers indicate Melbourne - Australian Property Boom

Every day I see something to get excited about for the future. I know it looks bleak out there.

But last week the City of Sydney approved $1 billion in projects to get the economy moving.

One of those happens to be plans for the tallest residential tower to mark the skyline.

Hello! We already have two record tall buildings recently approved down here in Melbourne.

If you know your property history, you know what this means.

We’re on track for another Australian property boom right into 2026.

There are few indicators in the financial world that keep working decade after decade.

The skyscraper index is one of them.

And, what’s this?

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Government floods money into the economy…

The Victorian Government has now announced plans for a $2.7 billion ‘infrastructure blitz’.

That includes new social housing, plus upgrades to roads and train stations.

I can hardly imagine anything more bullish for the housing market.

Property values will rise wherever these improvements are put in place.

I’m sure there’ll be plenty of people happy to acquire these sites with that very outcome in mind.

Don’t forget that mortgage interest rates are now as low as 2.09%.

One of the cruel facts of COVID-19 is that it’s hit jobs hardest in the retail, travel, and hospitality sector.

These are hardly the type of workers to leverage up a million or two into the housing market.

That suggests a broad based wipe out in the housing market is most unlikely.

Certainly, the skyscraper plans above are a clear indication that the big players aren’t waiting around for all to be right with the world.

You might recall the other week I said there were trends that were likely to surface as COVID-19 plays out.

One of those I threw out there was a resurgent interest in the ‘build to rent’ sector.

We got an inkling I was on track there.

A major property developer has now put in plans for two new towers in Melbourne with this in mind.

There’s enough building planned to keep the economy together.

Whether or not that’s enough to give life to the share market remains to be seen. My take is no.

The stock market dilemma in Australia

The economy and the share market are not the same thing.

Somebody living in Japan, for example, may have been employed and happy since 1991.

But they have not, most likely anyway, made money in the Japanese stock market. It’s never hit all-time highs again.

I’m not forecasting the same outcome for Australia. All I’m suggesting is that governments in Australia can prop up jobs and the economy.

That doesn’t mean the ASX 200 goes back over 7,000 points anytime soon.

Indeed, I think index investing is about to hit a massive brick wall in Australia.

Two sectors dominate our stock market. Banks and resources.

Each of those has a future that’s problematic in their own way. Banks are under siege from low interest rates and regulation.

But equally concerning for Australia is our reliance on fossil fuel earnings.

This is not a comment on climate change. But it brings two problems.

One is the divestment trend building where sovereign wealth funds like Norway’s drop stocks such as AGL and possibly even BHP.

But simple economics could be coming for them as well. The race is on for countries to harness renewable energy and solve the battery storage issue.

It’s not solved yet. But that’s where the future lies. And stocks not hitched to this vision will find themselves marked down.

The name of the game in the share market is to find the leaders of tomorrow.

Not even Tony Abbott would suggest Australia’s next great company is going to come out of the coal industry.

There is urgency to this idea.

One reason that the NASDAQ has roared back, for now at least, is because it’s chock-full of companies that are innovating and building tomorrow’s economy.

Stock markets in Europe, Japan, and Australia lag behind because yesterday’s heroes dominate them.

This is not theoretical. Your super fund is hostage to the earnings growth of Australian firms.

It means the art of investing in Australia is going to return to where it belongs: the stock picker.

Relying on the ASX 200 currently looks like a ticket to nowhere.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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