Two Building Stocks to Benefit from Free Money

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Property Market in Melbourne - Growth Suburbs Real Estate

And away we go for another week here at Profit Watch. It looks a lot like the last few weeks.

Except no!

Suddenly, the Aussie government is wrestling with what to do with the extra $60 billion it now has at its disposal.

The PM and Treasurer quite rightly point out that there’s no magic money tree.

But surely they can spare a bit for their friends in the property industry?

It seems so!

Let’s see…

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Predictable in their largesse and favours

The Australian Financial Review reports today that the PM is giving the cold shoulder to those with their hands out.

These include foreign visa holders, short-term casual workers, and the universities.

However, some largesse may appear for ‘vulnerable industries, including new home construction and tourism’.

Aha!

We have a clue already to the forecast Catherine Cashmore and I are making over at Cycles, Trends & Forecasts.

A nice, big first home buyer grant is coming!

The sooner the better as far as the building industry is concerned.

Venerable stalwart Avjennings Ltd [ASX:AVJ] came out with an announcement last week.

AVJ said business was slow, to say the least. But not perhaps the disaster you might think all things considered.

One interesting point AVJ management mentioned is that some of their fellow corporate peers and customers are acquiring sites for future development.

This fits in perfectly with the economic and property road map laid down here for you.

That is a slowdown in 2020 before the big gains start building for the next big run of the property cycle.

You don’t have to take my word for it.

The big developers are showing up with their plans and money.

I’ve already pointed out the three record-tall skyscrapers planned for Sydney and Melbourne.

Now we also have property behemoth Vicinity Centres [ASX:VCX] pressing on with this…

As it awaits better days post-pandemic, Vicinity is already putting in place plans for the massive redevelopment at Box Hill, where its retail footprint straddles existing shopping malls on two neighbouring sites.

I’ll keep you posted on that.

If you’re not from Melbourne, the suburb of Box Hill won’t mean much.

But homeowners in this area saw huge price gains in the price cycle from 2012–17.

The area is a huge magnet for Chinese migrants and capital.

I don’t think the gains in the area are finished yet.

But where else can one go looking for capital growth in Australia?

One would do very well to keep an eye on Western Australia.

Here’s a clue as to why from a seemingly unrelated story…

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Can’t Afford a Home in Your Dream Suburb? Here’s Why This Could Soon Change.

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Another way to think about this mainstream story

Did you see the proposal for a gas pipeline from WA to the east coast appeared again?

I don’t pretend to understand the merits of this project. I haven’t studied it.

But it does confirm one thing: Western Australia has cheap energy relative to the east coast.

Keep this in mind as a property buyer. Lower costs on the energy front will help translate to higher property prices over time.

One reason is that it will be a powerful factor in attracting businesses that have high costs from energy as an input.

Plus, we currently have the ongoing boom in iron ore and gold happening in Australia.

This is almost entirely in Western Australia except for a few projects along the east coast.

All those profits and wages are going to show up in WA property at some point.

Only time will tell if I’m right on that. But one thing I would urge you to do is to keep an eye on the stock Cedar Woods Properties Ltd [ASX:CWP].

I’m not saying it’s a buy today. They’re a builder. So they are in for a tough 2020 like most other businesses.

But their regular business updates are a handy way to keep an eye on what’s happening in WA property.

They are very well placed to ride along with the next phase of the property cycle over the next five years.

That takes us back to our starting point.

The looming first home buyer grant from the federal government — if it comes — doesn’t disappear into the ether when it’s spent.

It shows up in the accounts of the industries on the receiving end of the largesse.

Keep an eye on those home builders. It helps to dance in the areas where it’s raining free money.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch