What is all the fuss about? I don't understand why this is an issue? There will be a steady flow of baby boomers moving into retirement over 20 years, not some great big rush that starts next year. Then the gen X's start retireing. And our high immigration rate fills in the base of the pyramid.
See ya's.
TC, A steady flow over 20 years is exactly the tidal impact i am worried about when combined with other factors.
I am currently looking to get some IPs and have negotiated some goods deals. Though back in my mind I am concerned, as I think there are two big changes when combined will cause a negative feedback loop and push australia into a very deep recession.
One is ageing demographics and second is negative china impact. First has already started and cannot be stopped. The second I am an unsure when will happen. When these two factors combine it will be like GFC for australia, US style. This wasnt our GFC, but ours is coming and in my opinion will have different catalysts.. I am thinking I may have enough time to buy and sell out completely before then... but not sure hence hesitant...
Demographics: more retirees, less workers per retirees leading to higher taxes, lower budget (or mix of both). Already the asset trend is in motion, sell risk/growth assets buy income streams. Income super at highest level and will continue to gain market share. Sell any negative gear assets, no point with no income. Sell volatile assets. Many from World Bank, IMF to Matsuik and Yardney have also commented on this trend. I genuinely believe there will be more supply of houses for sale, in certain areas, as retirees (many who bought IPs since 2000) look to sell. Antedotal evidence (though very very small) seems like it has already started. Negative geared prop makes no sense at all with 0 income to offset losses against. It would be interesting to see the ABS stats about what proportion of IPs are owned by the to-be retiring age groups and how many claim losses.
The only way out of this in interim is higher population growth, immigration to boost taxes and demand. Based on current circumstances in OZ it seems completely viable. However immigration is only effective in growing economy with lower unemployment. This is where the combination with second catalyst comes in.
China: when (not if) china slows down the impact on australia will be drastic. In fact china doesnt even need to slow down much, their demand for australian exports needs to slow down.
China is the biggest producer of coal and iron ore, i think it produces as much as the next three countries combined. It imports about as much as it produces.... If china growth does slow down from 10% to even 6-7% one would assume they will drop the imports first..
Also china has good relations with iran, many african countries and russia. Much of china's commodity and energy needs can be met by these regions and internal supply. Also they are / have already invested many billions in these regions with long term (10/20 year )projects. Pretty sure the prices for the off-market long term contracts are well below the spot rates. There was a BBC documentary on China investments in Africa, and it was astounding... I think soon when these projects come to fruition the supply will increase and demand for australian exports will drops.
I have been big believer in this commodity boom and invested from 2004 through to late 2007, and then back in again in dec 2008 when oil was 35 USD (too bad its so hard to buy commodity futures in OZ, had to stick with shares) and out again in May 2011. This commodity boom is 11 years in already and I really do think we are nearer the top, rather than middle or bottom.. Supply will soon be more than demand thus crushing prices. Energy (oil / gas) will be ok, as it isnt as elastic, minerals not so...
Conclusion: Demographics are not good and will be a tailwind for property. One way out is immigration. But when china slows combined with demographics a negative feedback loop will start and in my opinion that will be the great OZ recession:
Bad demographics
China slows down
Commodity prices and AUD drops, inflation starts, trade goes into deficit
Unemployment rises
RBA reduces rates, AUD drops further, further inflation, trade deficit grows
Govt cuts immigration, to stop unemployment rising even further
Govt receipts drop, workers per retiree drops, budget deficits start
Govt cut spending but still cannot meet expenditure
Govt goes into deficit very quickly.
Govt raises debt to try stimulatye economy and cut the negative loop..
Ratings downgrades, higher funding costs for govt and companies.. and so on...
Some areas will do ok, others will get smashed... Hence i am in two minds about going ahead with my deals.. Although the deals are good and i am keen, i wonder if its better to hold and wait for this "better" opportunity from property investing perspective. Go with the head or the heart.. hmm...
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