Low Supply v High Demand

A very strong population growth in Australia is resulting in a high and growing demand for new dwellings to be built

By design, the Government is growing the Australian Population and spending Billions of $’s on infrastructure required to support this growth.

You also may be aware that Developers are struggling to get finance in order to be able to release new land and lots onto the market which has resulted in and continues to result in a lower approval rate for new dwellings

Now we just pointed out that the demand for new dwellings is on the rise because more people are calling Australia home and natural growth rates BUT we also just pointed out that the approval rate for new dwellings had dropped and is still dropping … can you see the looming problem?

In any economy, when demand outstrips supply the price of the goods under demand rises!

If I were a developer and could not raise the required funds needed to develop my property (house and land, townhouses, apartments etc) meaning I continue to incur holding costs and at the same time building costs (material and labour) continue to rise – it is blatantly obvious that I will now have to sell the property I am going to develop at increased prices to ensure I am still profitable or else I won’t develop. What this means to you the buyer is that you will now be paying more for the same thing because I am unable to secure funding to develop. Bit of a catch 22 especially at at time when the government has interfered in the property market to try keep prices down; but they also instructed the likes of APPRA to ensure that the banks lend ‘more responsibly’.

I call this irresponsible lending, especially at a time when demand for new dwellings is on the rise

So what does this all mean to you the investor you may be asking?

Now if I am wearing the investor hat I would be securing my next investment property as soon as the banks will lend me more money to take advantage of; Growth Locations; Prices of today; Increase in property values which will come about and Strong Rental Yields

Talking about strong rental yields, not every one can afford to purchase a property to live in but has to live somewhere and so will become your tenant

What with vacancy rates at all time lows and in most capital cities and satellite cities under 2%. A further widening of the chasm between demand and supply will increase the demand for new rental properties to be built. The tight supply has already enforced rental yields to rise and as it tightens further it is obvious that the principal of economics once again comes to the fore and drives rental yields higher

Someone needing a place to rent will pay more for the same to ensure that they have a roof over their heads because government housing is drastically undersupplied and tent cities have not popped up yet

Can you also identify the investment opportunity here?

And of course with historically low interest rates, there is every chance you will be cash flow positive with your investment after your initial deposit. Think about it, with the tax you will be saving (not paying the tax man) and the positive cash flow, within about 7 years you probably would have gotten back your initial deposit. Meaning you now hold an asset which you have not paid for. How good is that!

Remember, not all property is investment grade meaning you may not be in the position described above; so ask us how and what

Most Importantly match the investment vehicle to your goals

When investing in property, successful people strive for Financial Security, Lifestyle Choices or Generational Wealth … which are you fighting for?

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