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30-11-2014, 11:01 PM
Property to remain mainstay of nation’s resources for years to come
PHIL RUTHVEN THE AUSTRALIAN DECEMBER 01, 2014 12:00AM
Phil Ruthven on a Shaping Our Future panel at the Sydney Opera House. Source: News Corp Australia
PROPERTY in Australia will pass the $9 trillion mark by the end of this fiscal year in June 2015.
We love property, as most people in most countries do; and have often fought for over many millenniums. Property means many things to people: freedom; safety & security; prestige; belongingness; happiness; jobs; wealth creation; rental income; and more.
It dominates Australia’s total assets of $12.8 trillion (66.2 per cent) and has done so for a very long time, although the dominance was higher 10 years ago in 2004 (71.6 per cent). The first exhibit puts property and its broad segments in perspective within the nation’s total resources over the past two decades.
Clearly residential property, nearing 10 million dwellings (not all inhabited), has the major share of property in value as well as number terms. Its value is currently over $5.6 trillion, some 64 per cent of all property. Other property consists of commercial & industrial property, rural property and infrastructure (airports, ports, roads & bridges, utilities and more), and is valued at $3.2 trillion.
The value of all residential property has increased by 5 per cent a year over the past five years, just pipped by all other types of property at 5.7 per cent a year.
It may be of surprise to find our natural resources valued at less than a tenth (9.2 per cent) of the total as of June 2014, such has been the visibility of the current mining boom, our sixth since 1788, but this time being progressively dominated by energy minerals (gas, oil, coal and uranium) as the cycle peters out in the 2030s. That said, just 10 years ago in 2004, minerals accounted for a mere 3.3 per cent of all resources; and that share may well return in a few decades time as this cycle runs its course.
Machinery & equipment has eased from 6 per cent of total resources to 5 per cent over the past 10 years, an indication of the declining relative importance of industrial age industries and the cheaper IT equipment in the new age of service industries.
Disappointingly, Intellectual Property & Intangibles have remained at a lowly 1.7 per cent of total resources; not a good sign for an economy that needs to become a cleverer one in the competitive world of this new century and especially in the Asian mega-region.
The dominance of residential property — 43 per cent of total resources of $12.8 trillion — is evident in this second exhibit.
Dwellings are even more important in the household wealth stakes, representing 54.5 per cent of the $9.9 trillion total of the 9.3 million households. However, if household liabilities in the form of mortgages and other indebtedness are netted out, then dwellings retreat to 45.5 per cent of the total net worth of households of $7.9 trillion. Interestingly, financial assets are just overtaking the importance of dwellings in the net worth equation.
However, residential property prices continue to grow, especially in capital and large coastal cities. The growth in prices in the capital cities has been 4.6 per cent a year over the past five years and 5.3 per cent over the past 10 years. This growth has worried the RBA and overseas financial analysts.
For most of the post WWII years, dwellings were around 2¾ times household incomes, now 3½ times, having been as high as nearly four times just a few years ago.
So what are the big changes taking place in property? A lot.
Property is likely to remain the mainstay of the value of the nation’s resources for a very long time. Our land of 7.7 million square kilometres is close in size to China (9.6 million square kilometres) and well over the 3.3 million square kilometres of India, both having populations over 50 times ours. We are currently growing faster than the world’s population — 1.5 per cent a year versus 1.3 per cent — and are likely to do so for much of the future largely due to immigration; leading to growing land value and overall property values. The rapidly increasing wealth of the region is already being experienced in foreign ownership of property, especially rural and residential property.
Infrastructure property has long ago overtaken the value of rural property, and is poised to exceed all commercial and industrial property; such are the needs of a far-flung continent needing to be modern, closer and accessible.
And ownership? Cleary, home ownership is slowly reducing in favour of leasing and renting. This is partly due to affordability, but also to increasing financial literacy and lifestyle preferences. The same pattern has been more evident in the business world, which has been shedding hard/passive assets (property & equipment) in favour of leasing, factoring, outsourcing functions and IP, which easily outstrips property returns. So we can expect a lot more growth in property ownership.
Phil Ruthven is the chairman of IBISWorld.
PHIL RUTHVEN THE AUSTRALIAN DECEMBER 01, 2014 12:00AM
Phil Ruthven on a Shaping Our Future panel at the Sydney Opera House. Source: News Corp Australia
PROPERTY in Australia will pass the $9 trillion mark by the end of this fiscal year in June 2015.
We love property, as most people in most countries do; and have often fought for over many millenniums. Property means many things to people: freedom; safety & security; prestige; belongingness; happiness; jobs; wealth creation; rental income; and more.
It dominates Australia’s total assets of $12.8 trillion (66.2 per cent) and has done so for a very long time, although the dominance was higher 10 years ago in 2004 (71.6 per cent). The first exhibit puts property and its broad segments in perspective within the nation’s total resources over the past two decades.
Clearly residential property, nearing 10 million dwellings (not all inhabited), has the major share of property in value as well as number terms. Its value is currently over $5.6 trillion, some 64 per cent of all property. Other property consists of commercial & industrial property, rural property and infrastructure (airports, ports, roads & bridges, utilities and more), and is valued at $3.2 trillion.
The value of all residential property has increased by 5 per cent a year over the past five years, just pipped by all other types of property at 5.7 per cent a year.
It may be of surprise to find our natural resources valued at less than a tenth (9.2 per cent) of the total as of June 2014, such has been the visibility of the current mining boom, our sixth since 1788, but this time being progressively dominated by energy minerals (gas, oil, coal and uranium) as the cycle peters out in the 2030s. That said, just 10 years ago in 2004, minerals accounted for a mere 3.3 per cent of all resources; and that share may well return in a few decades time as this cycle runs its course.
Machinery & equipment has eased from 6 per cent of total resources to 5 per cent over the past 10 years, an indication of the declining relative importance of industrial age industries and the cheaper IT equipment in the new age of service industries.
Disappointingly, Intellectual Property & Intangibles have remained at a lowly 1.7 per cent of total resources; not a good sign for an economy that needs to become a cleverer one in the competitive world of this new century and especially in the Asian mega-region.
The dominance of residential property — 43 per cent of total resources of $12.8 trillion — is evident in this second exhibit.
Dwellings are even more important in the household wealth stakes, representing 54.5 per cent of the $9.9 trillion total of the 9.3 million households. However, if household liabilities in the form of mortgages and other indebtedness are netted out, then dwellings retreat to 45.5 per cent of the total net worth of households of $7.9 trillion. Interestingly, financial assets are just overtaking the importance of dwellings in the net worth equation.
However, residential property prices continue to grow, especially in capital and large coastal cities. The growth in prices in the capital cities has been 4.6 per cent a year over the past five years and 5.3 per cent over the past 10 years. This growth has worried the RBA and overseas financial analysts.
For most of the post WWII years, dwellings were around 2¾ times household incomes, now 3½ times, having been as high as nearly four times just a few years ago.
So what are the big changes taking place in property? A lot.
Property is likely to remain the mainstay of the value of the nation’s resources for a very long time. Our land of 7.7 million square kilometres is close in size to China (9.6 million square kilometres) and well over the 3.3 million square kilometres of India, both having populations over 50 times ours. We are currently growing faster than the world’s population — 1.5 per cent a year versus 1.3 per cent — and are likely to do so for much of the future largely due to immigration; leading to growing land value and overall property values. The rapidly increasing wealth of the region is already being experienced in foreign ownership of property, especially rural and residential property.
Infrastructure property has long ago overtaken the value of rural property, and is poised to exceed all commercial and industrial property; such are the needs of a far-flung continent needing to be modern, closer and accessible.
And ownership? Cleary, home ownership is slowly reducing in favour of leasing and renting. This is partly due to affordability, but also to increasing financial literacy and lifestyle preferences. The same pattern has been more evident in the business world, which has been shedding hard/passive assets (property & equipment) in favour of leasing, factoring, outsourcing functions and IP, which easily outstrips property returns. So we can expect a lot more growth in property ownership.
Phil Ruthven is the chairman of IBISWorld.