US & Europe Debt Crisis: How Will This Affect Australia’s Property Market?

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US & Europe Debt Crisis:Ed Chan

How Will This Affect Australia’s Property Market?

By Ed Chan

The global economy shows little sign of recovery in 2012, with many developed economies continuing to free-fall. Despite this, Ed Chan explains why Australia’s economy and property sector has good reason to be optimistic.

“Happy New Year” is not only my greeting to you this week but also my outlook for the Australian economy as we launch into 2012. Amid all the gloom and doom surrounding Europe and the US, Australia’s relatively healthy economy remains testament to the notion that Australia is very much the ‘lucky country’.

Let me be clear. I am not suggesting that the Australian economy will cruise through the next year without its fair share of bumps and bruises. One cannot ignore that the high Aussie dollar is hurting exports and local manufacturers and Australia’s post GFC debt level has risen to around $50 billion. This figure however is low compared to the mammoth debt swallowing the USA and parts of Europe, who continue to front significant economic chaos and which underpins a rather bleak 10-year outlook for the world economy.

To date the US Government has racked up $14 trillion worth of debt, with a GDP ratio of 100%. This figure has been tipped by the International Monetary Fund (IMF) to reach between 129% and 157% by 2020[1], while unemployment threatens to reach 10% in 2012.

Not withholding cause for alarm, the current euro-zone crisis is facing critical pressure following Italy’s  initiation last year into the ‘seven per cent’ club. Italy joins the group of euro-zone countries whose borrowing costs — as measured by ten-year bond yields– have exceeded 7%. With Italy’s public debts close to 120% of GDP, only Greece has a greater debt burden[2].

Back on home soil, the Australian economy is certainly faring much better than its US and European counterparts. Despite wobbling over domestic issues such as the Carbon Tax in 2011, the minority Government has renewed their commitment to support the dwindling manufacturing sector and drive export competition. Apart from the retail sector, Australian blue chip companies are cautiously optimistic about their future performance as high profits remain consistent. Underlying low employment and on target inflation is also being buffered by a booming resources sector, driven by extraordinary urbanisation rates in both China and India.

The collective result: market sentiment in Australia may appear to be wary but the Australian economic climate is healthier than we give it credit for.

My optimism for the next 12 months can also be carried forward to the Australian property market.

While Australian real estate prices are high by international standards, ‘the Australian dream’ of owning your own home is alive and well with 70% of property investors owner occupiers.

Strong demand will continue to support and grow the Australian property market in 2012, fostered by Australia’s aging population and a 350,000 strong swell of immigration. Australian property prices should also maintain a “steady as she goes” pace over the short term and will start to grow more as consumer confidence improves.

 As bleak as the US and Europe situation appears right now, life does and will go on as it has done in Japan, a nation with  many years of zero growth. What’s more, many people have created enormous wealth in challenging periods such as these.

Enormous profits await  the opportunistic minority who maintain a realistic and positive perspective of the future.

 

Ed Chan

Non-Executive Chairman, Chan & Naylor

(The views expressed above are the personal views of the author).



[1] The maths behind the madness – Economist Magazine, 9th November 2011

[2] Europe’s deepening crisis – Economist Magazine, 10th November 2011

 

Disclaimer: This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives.

When your circumstances change it affects your tax and asset protection position.  

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