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I noticed recently some news hit the airwaves down here in Australia.
News that was specific to two of our biggest states.
The reason why I thought I’d focus on this is because I’m certain you will be seeing similar scenarios where you live.
So, what was this news?
Two Australian states, New South Wales (NSW) and Queensland (QLD) announced their annual budgets.
Normally, this is barely of interest even to locals let alone people overseas. However, due to the emotion surrounding economies and the world in general, these budget announcements received far more attention than usual.
If you have recently had doubts about the future direction of the economy or indeed whether recent events have affected the 18.6-year Real Estate Cycle, this will be an informative read.
It quite clearly shows our view that “the more things change the more they stay the same”, as the old saying goes.
So you need to pay close attention.
Read on.
This will always be Plan A in the government’s playbook.
A few months ago, I wrote to my Boom Bust Bulletin (BBB) subscribers about precisely how property prices can continue to keep rising to the end of the current decade, even though everyone in all countries are worried that they cannot rise any further.
As you can imagine, my advice flew directly in the face of what the financial media were reporting at the time.
But talk is cheap.
What would prove my contention correct is to see the plans governments around the world are creating to stimulate things.
It’s not so much the fact both NSW and QLD announced vast spending plans to get their economies moving again.
Oh no, what is more important even than that, is where exactly this money is due to go.
Would you believe its infrastructure?
Controversial, huh!
Not if you follow the real estate cycle.
So, what does the NSW government plan to do?
The NSW government will lean on property owners, foreign investors, and betting companies to drive the state’s accounts back to surplus in a budget that banks on strong economic growth rather than new taxes to fill a shortfall triggered by a declining housing market.
Such a glorious statement.
We will step in to save a declining housing market by…leaning on the property market.
How do they plan to do it?
Budget commitments unveiled this year total more than $40 billion, including landmark announcements in childcare worth more than $10 billion over the next decade, housing commitments worth more than $2 billion and healthcare funding of more than $4.5 billion for new workers over the next four years.
Out of this money, A$4 billion will be invested in new childcare centers.
What’s the first thing you need to secure new childcare centers? That’s right, land.
These new childcare providers will then be given ‘incentives’ to provide lower childcare fees for parents.
Alas, dear reader, there be no such thing as a free lunch.
In Australia, to run a childcare center requires, you guessed it, a government granted license.
This is the ultimate form of monopoly.
So, you see, whilst the end user will see a difference in fees, it’s the government, via its granted license, who will ensure no hit to the provider’s bottom line.
Do lower childcare fees make your electorate happier? They sure do.
But this gain, once it manifests, isn’t for the parents and their children, it’s for the landlords.
And where does this gain end up – that’s right, the land. The same land these subsidized brand new childcare centers are built by chance. What a coincidence.
So, there’s one way to lean on the property sector to save the property sector.
But there’s more!
A scheme offering teachers, police and nurses the ability to buy a home with a deposit of as little as 2 per cent, while the government contributes up to 40 per cent equity, will cost $780 million.
I see two things happening with this.
One, the teaching, police and nursing industries are about to witness the greatest recruitment drive in NSW history.
Secondly, by interfering with a market where willing buyers meet motivated sellers, the government create an artificial construct which distorts economic activity.
But you see, that’s the point. Let me explain.
Say it takes on average a deposit of $100K to secure a mortgage to buy an average home in NSW.
This scheme allows eligible applicants to instead only have 2% deposit or $2000 instead. The government will then contribute to provide up to 40% equity on top of this to facilitate the mortgage.
In effect, you and the government become co-owners.
The point is, don’t fall for the narrative that a lower deposit required equates to a lower home price for first time homeowners.
The difference will be pocketed, as usual, by the vendor. This is in effect a land support mechanism dressed up as a positive step by government to help young people onto the famed property ladder.
Then there’s Queensland. Remarkably, like their NSW cousins, public services is at the center of the plan. This time its five new hospitals for over A$23 billion, A$3.5 million to boost the cross-rivers rail project in Brisbane and the third stage of the Gold Coast light rail project.
And, finally, five new schools.
There are many other social related budget items, but the bulk of the monies are land specific.
The result is going to be the same though. A land boom.
The key to everything.
If you are worried, concerned or swayed to make financial decisions based on what the media is telling you, I’d suggest a better way to do it.
Start viewing the world through the lens of the 18.6-year Real Estate Cycle.
Look for similar government spending where you live. Take some time to understand and identify how their spending will impact land prices.
It’s the key to everything.
As you can read above, my take may come across as cynical to some, but I’ve discovered a dose of skepticism is a healthy thing to have.
Governments around the world are most sensitive to rising or falling property values. Most voters are affected by it. They have also noticed that when they rise people are happy with you.
But should they fall.
Governments spend an inordinate amount of effort helping to alleviate such falls without coming out and expressly stating this is the sole reason.
In my eyes, these two state budgets are the very essence of this dynamic.
The land market must be protected at all costs. It must also be sold to voters as being directly for their benefit.
But for the PSE team it simply confirms the key drivers which underpin the timing of the real estate cycle continue to emerge.
I urge you to NOT be confused and misled by media reporting on the economy.
They will not tell you what you really need to know in a timely manner.
And they certainly won’t have any idea what’s in store for the land market for the rest of the decade.
But you can know. It starts with a membership to the Boom Bust Bulletin.
It will teach you the history of the 18.6-year Real Estate Cycle, why it continues to repeat to this very day and the opportunities to make life changing wealth for yourself and your family.
The time to prepare for the greatest wealth creation event in history has begun.
Is the media saying as much though? Of course not.
Because they are ignorant of the cycle, and what truly drives the economy.
Governments spending money to support the land market is one such driver.
Governments in Australia and around the world are pushing their chips onto the table.
Understand the cycle, recognize the timing and win.
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.