As in any business, you would normally want some sort of guarantee that what you sign up to will be sustainable and profitable in the long run. While several factors come into play such as supply and demand, there are two reasons why property markets in Australia are guaranteed to keep growing – population and wealth of the nation. With these two factors ever-increasing in Australia, it is also very likely that property prices will grow for the long term.
Now consider these figures.
There are around 22,900,000 people in Australia. According to the Australian Bureau of Statistics, we have an estimated:
- One birth every 1 minute and 47 seconds
- One death every 3 minutes and 35 seconds
- Net gain of one international migration every 2 minutes leading to:
- An overall total population increase of one person every 1 minute and 34 seconds.
Just last year, Australian population has increased by 300,000 people, far more exceeding the population growth of many developed countries.
Now let’s take a look at the country’s ageing population.
Demographers see that the nations ageing population challenging the population growth and their lack of spending could very well cause the next depression. As the baby boomers are getting closer to their retirement age, we may be facing a demographic tsunami. 43 per cent of Australia’s current work force is made up by the Baby boomers, and for the next 15 years, they will have reached their retirement age. They will stop paying tax, many will go on the pension and most use our public health system.
There’s a very big catch to all of these. The Baby boomers don’t have enough savings for their retirement, thus the government will have to do something once they leave the workforce. The government can increase the tax for people who are still working. But a more viable way would be not to increase the tax, but increase the number of people working to make up for the lost taxes. Importing more young and skilled individuals means more tax and more income for the coming years.
A recent government report found that our nation must find 800,000 new workers over the next five years to ensure economic growth, as new industries will soon rise out of jobs growth.
But how do these relate to property investments?
At present, 87 per cent of the population live in the urban cities of Australia. The trend seems to be going for smaller city dwellings and inner lifestyles concentrated on one of the capital cities. And with the number of people wanting well-located residences in the capital cities, the supply and demand for well-located properties will soon be on the rise as well.
But there’s more to it than that. We are in the ideal position to offer food, products and services. Plus, Australia’s tourism is booming non-stop, rendering more revenue, jobs and demand for dwellings, residences and apartments. Australia has the potential to become a prime holiday destination among the rich Chinese, just as how the Japanese loved going here in its heyday. Mining industry has likewise significantly contributed to the wealth of the nation, as well build more infrastructures, roads and resource exportation. To cap it all up, Australia is increasing in population, may it be from natural birth or immigration. It is also increasing in wealth coming from the rise of new industries and tourism. And if we look at it closely, the wealthier Australia gets, the better it is for the property market.
Now let’s take a look at Australia’s capital growth and why it is important.
To better illustrate how capital growth and return yield come into play, let’s assume you want to purchase a property worth $500,000. If you opt for a poor capital growth area rendering five per cent per annum, the property would be worth $1.3 million in 20 years. But, if you purchased a property of the same amount in a high capital growth area rendering eight per cent per annum, the property would be worth $2.3 million in the same time frame. That’s a substantial $1 million or more difference! It doesn’t really take genius to figure out what’s better between the two options.
The real bonus for the investor who bought the high growth property is that they will have access to for extra equity to acquire more assets. You will unlikely to do so if you purchase a property with high rental returns in poorer capital growth.
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