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Dear Readers,

I occasionally indulge in a thought exercise that often plays out like the one below.

I’m suddenly transported back in time onto the deck of the SS Titanic on her maiden voyage.

But since I’m playing the part of a time traveler, I of course know what’s coming next.

The thought experiment is this: what precisely would I need to say, and to whom, to convince those on board they are about to meet their doom (most of them, anyway)?

Does it involve convincing everyone on board of the danger – or just a select few (say, the crew on the bridge) who may be able to do something about avoiding the catastrophe?

It’s an intriguing point; one I will come back to in a second.

I admit the recurrence of such thoughts as I read about a recent property event held in Australia this month.
Source – Australian Financial Review

Here is a quote from the article. Bolded text is my own.

You have to love the property sector. It talks about data centres as though energy isn’t an issue, healthcare properties as though private hospital operators aren’t going broke, student accommodation as though our university sector isn’t battling, retail as though Amazon doesn’t exist, and working from home as though all employees love going to the office.

I have always enjoyed Anthony Macdonalds (Chanticleer’s) thoughts on the property sector. He captures the absurdity and naked ambition of the Australian property sector better than most.

Maybe he is the one we should send back to the Titanic instead?

Now, what’s the significance of this quote? There is a bigger picture here, one I alluded to last week. If you haven’t read or don’t remember last week’s newsletter, feel free to catch up on it here.

It’s the opinion that, much like those on that doomed cruise liner, it almost doesn’t matter what you try to say or explain to these people when they congregate together at summits like these.

Chanticleer has in fact reported the same general sense of euphoria and, dare I say, notion that an inflection point may have arrived for the big end of town in the property sector. One I have strived to inform you of in these very pages.

Take a look at some of the text further in his article below.

A day inside the property bubble is eye-opening. They’re all over it.

The mood is definitely better this year – interest rates are coming down, cost pressures have eased (somewhat), asset prices are up, foreign capital is interested and everyone’s talking about an “inflection.”

Public markets are watching. Generalist investors, the ones who can invest in big, listed REITs or iron ore miners/banks/supermarkets, have bought back in.

It’s now up to the property owners – the big REITs and fund managers – to capitalise.

They have options and can lock in fresh funding for the first time in five years to roll into new assets, developments, or whatever else takes their fancy.

See what I mean? How do you tell such folks that they may have left all this too late?

And would they even listen?
This is simply the tip of the iceberg.

I will go on record and predict something here.

Over the next 6-12 months, at least during whatever duration the current RBA rate cut cycle is, you are going to hear and read a lot more about just how good an investment Australian listed REITs (Real Estate Investment Trusts) have been.

On the one hand, this makes sense. Since the RBA began its 18-month rate rise campaign, we saw the meta that is the inverse relationship between interest rates rising and the performance of debt exposed REITs.

They perform poorly in an environment of rising interest rates, as this directly impacts on an asset that is highly sensitive to the cost of financing. Therefore, with those same rates now falling, the net value to assets look much more appealing on their respective balance sheets.

And this is a trend happening across the developed world now as many different governments cut interest rates.

And so dear reader, this is what it means for you and your investment capital.

Historically, when REITs find themselves in situations like these, they go on the road to raise capital.

So yes, they are coming for your money.

We will see an almighty equity raising campaign play out here, with big plans for what they intend to spend that newly raised equity on.

That’s why they attend events like this summit.

But this speaks to an altogether larger issue at hand. And yes, I wrote about this last week.

There really isn’t a whole lot of new and exciting projects for these funds to buy into.

With land prices – globally – at historic highs (that’s right – never in history have they been as high as this), by the time you factor in the cost to buy it plus borrowing costs, there isn’t much left in terms of a profit margin.

It is that margin which must increase to allow these assets to offer you very high dividends and capital growth.

And so, we shall see a trend of these funds chasing the gains between themselves, bidding land price higher that is predominantly located in peripheral locations, in order to secure for their investors a return that can only be sustained if they continue to find new equity.
You have to love the property sector.

Let me be brutally honest, all of this screams just one thing to me. It is entirely indicative of where we are in the 18.6-year Real Estate Cycle.

I see it all over the place: the hubris on display at a property summit, places like Saudi Arabia who aren’t satisfied with just building a 1km high tower but are now proposing to build a 2km one.

The excitement about Taylor Swift’s marriage in 2026 and the amount of coverage it’s getting.

These are all signs of the times.

It’s just that those of us who study the land markets see them as warning signs. Are REITs potentially good investments over the short term? Sure.

And next year when they top and have a wobble, you’ll also be told it’s an opportune time to do what investors call “buying the dip”. But members of the Boom Bust Bulletin (BBB) will understand what it actually means.

Not only should you learn to do the opposite of the crowd at such times, it’s also important to understand why you should do it too.

The BBB is your metaphorical ticket to that first lifeboat whilst the rest enjoy the view, oblivious to the danger.

And today, the tip of that iceberg is within eyesight. The time to learn just how much lies below the surface is now.

Before it hits!

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Best wishes,

Darren J Wilson
and your Property Sharemarket Economics Team

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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.