SSS – Aug/Nov 2018

Doom & Gloom – Really?
As you’re aware, the mainstream media have been plaguing us with pending property doom and tipping a massive correction to occur very soon. 60 Minutes is probably the most noteworthy as they had a finance professor (Martin North) state that a 40-45% crash was possible.

What 60 Minutes failed to disclose was Professor North only placed his 40% prediction on a 20% probability; his most likely scenario for Sydney and Melbourne was a controlled correction of 10-15% over the next 2-3 years.
https://www.abc.net.au/mediawatch/episodes/60-minutes-property/10300068

On the topic of academics, the Queen asked a bunch of them back in 2008 why no one foresaw the GFC to which they were stumped and effectively blamed it on a lack of imagination.
https://www.theguardian.com/uk/2009/jul/26/monarchy-credit-crunch

There’s a saying that goes if it’s in the news, it’s in the price. Broadly speaking, the mainstream media are always late in their reporting, but we can use the media to guide our investment decisions and judge where we actually are in the cycle. In line with the principles of risk management and safety, the likelihood of a high-risk event being realised is greatly reduced with heightened awareness and mitigation.

This is exactly what is playing out now with Australian property in general. The increase in negative news is our cue to either remain or continue building our property holdings where it is feasible and responsible to do so.

The Banking Royal Commission is also good for us as the tightening in credit conditions and serviceability standards will slow housing supply, yet population growth and underlying demand continues upward in line with the growing Australian economy. This will lead to increased rents followed by capital growth.

Australian exports of tourism, coal, iron ore and LNG are now trending higher, so much so that there’s actually a chance the federal government budget will be in surplus this financial year. https://www.afr.com/personal-finance/budget-in-surplus-in-first-11-months-of-2018-20180705-h12bov

There’s also been a lot of focus on China, but very little on India, a country of over 1 billion that are itching to pull themselves out of poverty and become more developed. This is exactly where China was 15-20 years ago! China’s Belt-Road Initiative (BRI) will also require large amounts of steel and energy and if Australia supplies even just 20% of the anticipated demand, we’re potentially looking at another mining boom similar to 2004-2010. http://www.acbri.org.au/

In summary, Australia is tracking pretty well. This doesn’t reduce investment risk though and when it comes to property investment, there’s a lot of considerations from land-size ratios, demographics, market-cycle, interest rates and investment buffers to name a few that need to be considered. This is in addition to your specific circumstances as an individual.

Always remember that property (land) is a long-term play and its price is derived by its overlying economy and position in the cycle, therefore avoid buying in at cycle peaks.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote
When everyone rushes to one side of the boat, head to the other side to avoid getting soaked

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