Changing Australia's mindset to a positive economic outlook: Bill Ireland

What has to change is confidence - a state of mind.

Thirty years ago about this time, a great Australian sporting victory changed the mindset of the Australian population from can't do to we can do anything.

The Americas cup victory by a tenacious Australian crew changed our attitude, and from that day on the country moved forward.

Today emerging confidence may come from many sources; the continual lowering of interest rates to the lowest level known by this generation, clarity in the state of the political environment and the gradual emergence in the US and European economies out of recession.

The overall weight of capital in both savings and superannuation accounts waiting for efficient deployment is staggering. This capital is earning exceptionally low real rates of return and will, with the emergence of confidence be deployed. It has to, to justify its purpose in providing fulfilling retirement for superannuates and a security of lifestyle for savers and business investors.

The question is how cash deployment will affect various real estate sectors?

Clearly, yield-chasing investors will support commercial property that has well-secured income streams. However, the general investment market needs to improve to support the underlying operating leases. This is something that may take a few years to slowly flow through.

Currently, residential property seems to be divided into three defined sectors.

* Up to about $1.5m,

* Round about the $5m mark

* $20m and above.

My view is that up to the $1.5 million mark, is well supported and is currently showing benefits of low interest rates. Together with the inherent backlog in housing construction, there is a positive effect being made.

The $5 million and above sector tells a different story. The servicing of a large mortgage that is required to purchase such property also needs the security of employment and the prospects of substantial bonuses and

dividends. It is also evident that there is a change in attitude towards these properties which result from the ongoing maintenance rates, taxes and electricity. All of which contribute to putting a further burden on this market sector.

As for the top end, (about $20m + sector) there are always clandestine sales taking place.

Following the recent introduction of the significant investor visa program by the federal government, (which is designed to attract wealthy migrants to Australia by investing $5 million into a business in return for providing a family with permanent residence) evidence to date suggests that these wealthy migrants while happy to invest $5 million in a required enterprise also have an appetite for high-end residential property i.e. around the $20 million mark. Early days but it is starting to have an impact.

The federal government expects to issue over 1,000 visas per annum.

If we followed this scenario through, over $20 billion per annum could be pumped into the upper end residential property market by just 1,000 families.

This would undoubtedly have a flow through effect to all sectors.

My view ­is that overall confidence will return, as always up by the staircase down by the elevator.

Maintaining a considered and patient approach to the future may be the best way forward.


Bill Ireland  is a current advisor of ISA Partners and formerly a founder of Challenger Financial Group and Mariner Corporation. 

 

Mr Ireland filed for personal insolvency in early 2011 with a reported tax bill of $38m and owed money to other creditors.


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