It can be easy to fall into the trap of thinking that the Australian market will follow the same path as the US and UK markets – but will it really?
When it comes to comparing property markets, although there are some similarities between our market and that of the UK and US, there are also a few key differences. According to Nathan Birch, it is these differences that make… well, all the difference, in how our market will ride the GFD.
We are all fruit in the global fruit bowl.
Every market is a part of the global economy. But, just as apples and oranges can be kept in the same fruit bowl but look and taste completely different, so too can our economies.
“I talk a lot about how monetary supply is the effect of what we’re seeing today in the property market,” says Nathan Birch, renowned property investor and co-founder of Binvested.
“Looking at the US and the UK markets, they are very similar because they all use the same money.”
Unaffordable housing is not unique to Australia.
Nathan says, “Over the course of the last 3 to 5 years, we’ve been seeing stories of house prices being unaffordable.”
“The same news articles have been said in the US, the UK, Canada, the Philippines, Australia – all those markets.”
While the fundamentals of monetary supply and policy have shaped economies around the world in a similar fashion, he says there are other factors that set Australia apart.
What is unique about Australia?
According to Nathan, the thing that sets us apart from the major economies of the world is our age.
“The key difference is that Australia is a young country.”
In contrast to the US and UK being well established and highly populated, Australia has a small population and short colonial history.
“Australia will be more of a stand-alone country when we get to around 60 million in population,” says Nathan.
“We are currently only at about 24 million.”
We need more housing.
For Australia to prosper, says Nathan, we need to keep immigration strong in order to raise more taxes.
“It would be political suicide for us to stop immigration,” he says.
A growing population requires an increase in housing supply – a demand that sets us apart from more established economies.
“Australia is very different to the UK and the US because we have demand to keep building properties.”
“When we build properties we have employment for tradies, electricians and plumbers.”
What about Japan?
“People are talking about Japan, and what is the difference between Japan and Australia?” Says Nathan.
“The difference here is much to do around where the money is.”
The Japanese economy has been in a state of “stagflation” for the past 30 years or so. In other words, their economy hasn’t grown.
“As they have borrowed funds they’ve just printed off their own bonds because they have been making their own money.”
“They haven’t been out there doing other financial instruments and tying it back to the Japanese Yen.”
This is in contrast to other countries such as Australia, which simply borrow from other economies.
“That’s why the Japanese market is very different.”
“They just keep feeding off themselves, whereas everybody else just feeds off the next country, the next country, the next country – which is kind of like a tape worm feeding off its host.”
What is next for the Australian market?
“The financial markets are in a mess,” Nathan says.
“We are about to see a GFC, however, how that rolls out will obviously have a flow on effect to property markets and many other different financial markets out there.”
But this doesn’t mean it’s game over for investors.
“I see some of the investors that can’t get over the hurdles of financing at the moment, possibly going to other states where things are more affordable,” he says.
A lot of regional areas have started going up in value as strict lending policies have made it harder to invest in major cities.
“I think that as demand spills over into those sort of markets, we are going to see less construction happening in the capital cities.”
“Which will inevitability put a pent up of demand moving forward.”
It’s Nathan’s kind of market.
Nathan says he gets excited in these kinds of markets. Why? Because increased volatility can mean that “people who are more motivated to sell will take lower offers.”
“These are the markets where I really laid my solid foundations,” he says, comparing the current economy with the GFC of 2009.
Despite job insecurity and property prices falling, Nathan managed to quit his job during this time in order to focus on his investing. Thanks to his strategy of minimising risk and buying below market value, Nathan was able to generate enough passive income to give up his day job.
Which just goes to show that we are not really victims of a crashing market. Instead, we can use our knowledge of the monetary system to ride out each cycle and come out on top when the economy starts to flourish again.
“For any investor out there, it’s important to look for the opportunities within those markets to be able to pounce upon them and to put yourself in a position where you can profit and benefit from.”
“If you understand how the financial system works, and the monetary policy works, and the levers that are being pulled by the central banks and the governments, you can sort of see what’s coming ahead.”
Having said this, Nathan urges investors to exercise due diligence and be careful with the choices they make.
“It’s important for people to buy with caution and be careful with what they’re doing.”
Things to keep in mind.
In 2017, Nathan called a price correction. This is already playing out, and is expected to continue for the next 12 to 24 months.
“There are a lot of people that are getting fearful,” says Nathan.
But on the other hand, he says “There are also people that are getting motivated.”
He says, now is the time to get your finances in order.
“Keep your financial position very safe, secure and make sure that you’re ready to weather some sort of storm.”
“If you do need to sell a property in the not too distant future, try and do that now. Expedite that process while you still can and there’s more buyers out there, because things could get shaky for the next 12 to 36 months.”
If you are looking at getting equity out of your properties, he says it is best to do so now.
He thinks there will be no growth or slight declines in growth for the next couple of years.
But this doesn’t mean all is lost.
“Property is a long term investment and one should always look at it from what their short term goals are, what their long term goals are, and how their property’s going to help them get through that.”
“Be very diligent, but don’t be fearful not to take action.”