Five Forces That Are Sparking The Post-Recession Boom

Five Forces That Are sparking the Post-recession Boom

Lianna Pan

Actuary and Data Scientist Founder & Director of Research, Freedom Property Investors

Contents: Foreword

03

First the Shock... Then the Boom

05

Force #1

08

Force #2

12

Force #3

15

Force #4

17

Force #5

19

Understanding these forces

22

Disclaimer: Information contained herein is gathered from sources we deem to be reliable however warrant no guarantee as to the accuracy of third party data. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. All rights reserved.

Lianna Pan, Founder & Director of Research

I was always a good student at school.

In fact, it was my abilities in maths that led me down the path of actuarial science. I studied for about seven years to become a fully qualified actuary. And then, I went on to enjoy a good career where I worked for some major insurance companies while earning really good money.

But it was working in the actuarial world that helped me recognise something important: You cannot save your way to financial freedom.

It doesn’t even matter how much you earn. A higher income simply means you’re paying more in taxes. This discovery led me to a period of intense research and learning. I studied many different asset classes and The Five Forces by Lianna Pan

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learned that property was the only way to go if I wanted to achieve financial freedom fast. So, I purchased my first property in 2008.

Those of you with long memories will recognise this as the year of the Global Financial Crisis (GFC). Many would see my decision as a fast route to failure given the climate.

But over time, I’ve created a portfolio of 27 properties, despite buying my first during an economic recession.

And I achieved this by applying my skills as an actuary to the property market. I explored the hidden data and trends that the mainstream media don’t report on. This enabled me to purchase in great locations with aboveaverage capital growth.

Why am I telling you this?

My journey as a property investor taught me a very valuable lesson. Every economic shock creates a property boom. And, what’s more, these types of opportunities don’t come along very often.

An economic shock kickstarted my property portfolio and, right now, we’re coming out of another economic shock as I write this article. This means that you have an opportunity to create financial freedom fast, as long as you take the opportunity.

In this book, I want to show you how to fast track your wealth during the next economic wave.

Lianna Pan, Founder & Director of Research Freedom Property Investors 4

The Five Forces by Lianna Pan

First the Shock...

Then the Boom

It was billionaire investor Warren Buffett who said: “Be fearful when others are greedy, and greedy when others are fearful.”

What he’s telling us is that our intuition often steers us in the wrong direction as investors. When the economy’s undergoing difficulties, everybody grows fearful.

This can influence you to avoid making investments, which means you miss out on opportunities.

But achieving financial freedom is about making strategic moves consistently over long periods. You achieve this based on the data, rather than what everybody else says. You need to have a plan.

The simple fact is that the majority of investors don’t have one. You may have a loose idea of wanting to save money, trying to get a pay rise, or trying to pay your home loan faster. But most people don’t act on these vague ideas. The vast majority don’t have a plan for growing their wealth, even if they do manage to save some money. That means they’re in no position to capitalise on the economic boom to come.

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Let’s focus on the COVID-19 pandemic. As you’ll see from this chart, Australia was enjoying its biggest period of property growth in history before the pandemic:

Month-on-month Change in Dwelling Values (Combined Capitals)

Source: CoreLogic (Latest data as of March 2022)

We can see that the market grew enormously from the midpoint of 2019 onwards.

And it kept growing until COVID-19 came along. However, the property market has rebounded quickly and strongly after a declining trend at the height of the pandemic.

In fact, 2021 recorded the fastest pace of property growth in more than 30 years.

The point I’m making here is that you can’t base your decisions on the issues that any economic shock creates. Instead, you must base them on the future that this economic shock will lead to. It’s also important to note that we have precedent for the prediction of a boom period post-COVID. Take a look at this chart:

Spanish Flu and the Housing Market Population growth rate

14%

3.0%

12%

2.5%

10%

2.0%

8% 6%

1.5%

4% 2%

1.0%

0%

0.5%

-2% -4%

0.0% 1918

1919

1920

1921

1922

Source: John Lindeman; Stapledon’ s Index, Long Term Housing Prices in Australia, Nigel Stapledon, UNSW; Australian National Libray ’ s online Trove facility and Mitchell Library archives.

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Annual Population Growth R a te

Capital City House Price Change

House price annual change

Here we see the changes in property prices in the wake of the Spanish Flu pandemic.

What we see here is a spike in population growth once the pandemic ended and borders opened up again. That increase in population played a huge role in the booming house market that followed the pandemic. In fact, prices increased by 14% in the year following the pandemic and grew by another 12% the following year.

We saw the same thing play out in the aftermath of the GFC. Those who had a plan and executed it while others acted fearfully benefited enormously. You can see this from my own example of buying during the GFC and growing an amazing portfolio in the years that followed.

These are not unprecedented times.

In fact, there’s a clear pattern of economic booms that occur following an economic shock. But it’s important to know that there are five forces at play here that will spark both a recovery and a boom period post any economic shock.

These are as follows: •

Australia has unmatched economic firepower to fund our recovery.

•

Australia suffers from a critical housing shortage.

•

Low interest rates, high rental yields, and relaxed lending policies will create positive cash flow for investors.

•

Government stimulus for first home buyers and owner-occupiers.

•

The population explosion and the coming immigration boom.

If you understand these forces, you can protect yourself now, while profiting in the future. Let’s explore each of these five forces in more detail.

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Force #1

Australia Has Unmatched Economic Firepower to Fund Our Recovery Let’s get the obvious out of the way first – Australia’s debt level has increased. What the media often doesn’t do is offer a comparison between that debt level and the rest of the world:

Net Public Debt, 2019 & 2021 2019

2021

180 160

Percentage of GDP

140 120 100 80 60 40 20 0 Australia

S U

u E rozone

Source: IMF, AMP Capital 8

The Five Forces by Lianna Pan

Japan

This shows us that Australia’s debt level is actually much lower than that of many other major countries. This means the Australian government has room to do more. It can increase the funding that it’s currently placing into stimulus packages

which

we

have

seen

evidence

of

during

the

health

crisis.

We must also remember that there have been several times in Australian history where the country came back from deeper levels of debt:

Australian Federal Budget Deficit

Source: Reserve Bank of Australia, Australian Treasury, AMP Capital (Latest data as of May 2021)

We see here that both World Wars plunged the country into deeper levels of debt than it’s in right now. However, we also see that, in both cases, Australia recovered in a short period of time. On both occasions, the Australian government dug deep to stimulate the economy and create a recovery.

We must also consider changes in the cost of debt over the years. In 2020, the Australian government took on more debt as part of its efforts to stimulate the economy. However, the cost of repaying that debt decreased. As a result, the government isn’t repaying any more than it already was.

Let’s turn our focus to another area of the economy – employment.

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At the peak of the health crisis in 2020, the unemployment rate reached 7.4% before recovering swiftly. By Jan 2022, the unemployment rate had dropped to 4.2%. If we compare this figure to that of our historical unemployment rates we can see now that we are in a far better position than we have been in the past.

Australian Unemployment Since Federation

Notes: Data prior to 1966 is annual. Data from 1966-78 is quarterly. Data from 1978 to present is monthly and seasonally adjusted.

Source: Grattan Institute, Australian Bureau of Statistics (Latest data as of Feb 2022)

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We see here the rate moved above 10% during both the 1980s and early 2000s. Again, our point is that we’ve been through this before. As we see other restrictions lifted, the unemployment rate will decrease in kind.

There’s one more aspect of this force that have played a significant part in stimulating the economic recovery.

The stimulus packages the government has implemented are the largest in the country’s history. Per the Treasury, the Federal Government has spent $291 Billion in direct economic support since the beginning of the pandemic to May 2021.

Compare this to what we saw during the GFC. In this instance, the government only spent $10 Billion on economic incentives. The spending we’re seeing today completely dwarfs what occured during the last shock. The Reserve Bank of Australia (RBA) has injected billions of dollars into the economy. On top of the $200 Billion worth of government bonds already purchased, the RBA has continued purchasing bonds at a rate of $4 Billion per week until Feb 2022.

Where is all of this going to go?

Since the start of the pandemic, the government has increased the 10-year infrastructure pipeline to $110 Billion, supporting 100,000 jobs through projects currently under construction. It has already invested record amounts into stimulus packages and that investment will increase over time.

The investment will pay off as the economy enters a boom period on the back of it as we have already seen with record price growth in 2021.

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Force #2

Australia Suffers from a Critical Housing Shortage This chart shows us the number of property development approvals per year. We can see here that the number plunges in 2018. In that year, we saw over 230,000 development approvals.

Dwellings Commencements / HIA Forecasts - Australia

Source: Australian Bureau of Statistics, Housing Industry Association, AMP Capital (Latest data as of Dec 2021)

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The following year saw a 40% drop-off in this number. Note that these numbers cover all dwelling types, including houses, apartments, and townhouses.

By 2025, it is forecast that Australia will be building fewer homes than we were when we had a similar population. For example, in 1989, we saw 177,000 approvals when the population stood at approximately 16.8m. We are now seeing forecasts of circa 170,000 commencement of dwelling types for a population of approximately 25 million.

It’s this lack of approval that will lead us to an even larger property shortfall in the coming years. If we have a housing shortage, property prices will increase, as we’ve already seen. However, this critical shortage also translates to fewer rental properties on the market. This, in turn, creates lower vacancy rates.

Vacancy rate in April 2020 stood at 2.6%. As of Jan 2022, it’s down to 1.3%.

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Those of you who remember the post-GFC period may also remember the rental crisis that occurred then. In some cases, tens of people lined up to rent one property and they all had to outbid each other to get it.

We’re heading into that territory again right now. In fact, we’re already seeing the start of this in some capital cities. Brisbane has a vacancy rate of 1.1%, which is a critically low level. Sydney’s started to drop after an extended period of housing constriction between 2015 and 2017.

What does all of this mean for you as an investor?

In the post-pandemic world, there will be a surge in demand for housing supply which we are already seeing evidence of as property prices continue to increase.

You will be able to command higher rents from tenants and ask for higher prices when selling.

Australia’s critical housing shortage is an enormously powerful force for investors.

It places you on the winning end of a supply and demand situation.

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The Five Forces by Lianna Pan

Force #3

Positive Cash Flow for Investors

The national cash rate is lower than ever before and it’s going to stay that way until at least 2024 as indicated by the RBA. They’ve signalled that the cash rate won’t increase until unemployment drops to 4.5% and inflation returns to 2% or 3%.

There have been discussions about whether or not the RBA will increase interest rates earlier than originally expected.

It is important to remember that interest rates, as they are currently, are still the lowest they have ever been. Moreover, any increase from an already historically low base, simply means that investors should get quickly in 2022 to assure greater profit margin.

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Combine these facts with the current rental crisis situation.

When you own that asset, you’ll be able to charge higher rents because of the crisis. This means you’re repaying less money on your loan per month while gaining more from your tenants, The result is more positive cash flow from your investment properties.

So, we’re seeing a combination of lower interest rates, higher rental yields, and lax lending policies act in your favour. I’m already experiencing the benefits of this amazing combination myself. In fact, one of my most recent purchases currently generates $16,000 per years in positive cash flow.

The key message for this force is that achieving positive cash flow will be possible in the post-pandemic world. The combination of factors as I mentioned will likely make it easier to achieve than in previous years. Once again, we see the effects of an economic shock leading to a boom that benefits investors.

“I’m already experiencing the benefits of this amazing combination myself. In fact, one of my most recent purchases currently generates $16,000 per year in positive cash flow.”

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The Five Forces by Lianna Pan

Force #4

Government Stimulus for First Home Buyers and Owner Occupiers

I’ve already covered just how much the Australian government’s has poured into stimulus packages during the pandemic. However, it’s also important to hone in on some of the aspects of the economy that these packages has affected.

HomeBuilder Grant ran from June 2020 until April 2021, offering $15k to $25k.

As of March 2022, $2 Billion in grant repayments have been made under the program.

The construction industry is one of Australia’s most significant economic drivers.

All told, construction accounts for about 7% of our Gross Domestic Product (GDP).

It’s in the government’s best interests to ensure this industry thrives as much as possible. What’s more, it’s in the economy’s best interests, too.

Simply put, the housing industry is one of the few that you can quickly stimulate after an economic shock.

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What does this mean for first-time buyers?

As mentioned earlier – we have a housing shortage in Australia, therefore the increase in newly built homes is essential to ensure all individuals have access to a roof-over their head – a basic human right. Investors play a key role in ensuring the livelihoods of Australians.

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The Five Forces by Lianna Pan

Force #5

The Population Explosion and the Coming Immigration Boom We’ve established that an injection of funds into the construction industry is a priority for the government. But once they’ve introduced that immediate injection, they move onto their second policy: Increasing the immigration quota.

There are several reasons why the government focuses on this aspect of the economic recovery. The most basic is that bringing more people into the country creates more demand for properties. This further stimulates the construction industry to create the supply needed for that demand.

Beyond this, immigrants bring both money and their skill sets into the country.

And their skills contribute directly to the revival of the economy. For example, an immigrant who comes to Australia may start their own business. This company will then need to hire people, which creates more jobs.

Prior to COVID-19, Australia’s population grew extremely quickly. For over a decade, it’s grown faster than many other major countries, including Canada, the United States, and the UK. A lot of this is due to the immigration policies that we have in place. We can see an example of this if we revisit the years that followed the Global Financial Crisis in 2008:

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Australian Moving Annual Population Growth Total

Net Migration

Natural increase

Source: Australian Bureau of Statistics 2018

In the wake of the GFC, the government raised the immigration quota to 300,000 people. This led to 450,000 immigrants arriving in the country between 2008 and 2009.

For context, that’s equivalent to the population of Canberra coming into Australia, and all of these people need to get accommodated in the space of one calendar year.

Perhaps you’re reading all of this and are now thinking that this is just one instance of population growth. You’re correct, but there are several other instances of these types of immigration policies following a shock.

We can see the spike in population following the GFC clearly. But if you go further back, you see an even larger spike in the aftermath of World War II. Immigration accounted for 2% of national property growth during that period. And again, the war was another shock to the economy. Following the spike, the immigration numbers remained high through to the 1970s.

The government acted the same way in the 1940s that it will act in the aftermath of the pandemic. We also see that same pattern in the wake of the GFC shock. There’s an immediate spike, with immigration maintained at a higher level than before the shock in the years following. This is a deliberate policy.

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The Five Forces by Lianna Pan

Net Overseas Migration as a Percentage of the Population

Source: Australian Bureau of Statistics (Latest data as of June 2021)

With

more

international

borders

reopening,

population

growth

across

the country is anticipated to increase more along with greater demand.

According to ABS, Australia’s population in 2022 sits at circa 25m. The government expects that within the next 10 years this will increase by more than 3 million residents, more than half of which will be overseas migrants.

Australian Population Natural Increase vs Net Overseas Migration Natural increase

Net Overseas Migration (NOM)

Source: Australian Bureau of Statistics, Budget 2021-22 population projections (Latest data as of January 2022)

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Now, consider what we spoke about earlier. Australia’s only building about 140,000 homes per year right now. If we see similar population spikes to the ones we’ve seen after other economic shocks, there’s going to be a huge demand surplus. If you own an investment property when this occurs, you stand to reap the financial benefits.

Understanding These Forces In Australia, there are areas that have low vacancy rates and massive population pressures already. Those pressures will only increase once the pandemic ends.

Through research, you need to understand where these areas are. This will allow you to grasp an opportunity that most people can’t see right now. When the boom comes along, you will achieve good capital growth and higher rental yields.

Freedom Property Investors is the largest community of investors in Australia.

We’re experts at using the power of our community to negotiate exclusive property benefits that make these assets perform better than those in the same suburbs and regions. We’ve done this for almost a decade and are able to offer our members enormous benefits by way of rental guarantees and special inclusions.

Sooner or later, the current economic shock will come to an end. And when that happens, the five forces that I’ve spoken about here will come into full effect. Those who had a plan and took their opportunity early on will have benefited enormously.

Are you ready to master the five forces of the coming economic boom? Do you want to join the largest community of property investors that Australia has to offer?

Click Here to get in touch today and arrange your free consultation!

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The Five Forces by Lianna Pan

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Freedom Property Investors simplify investing while helping you every step of the way toward achieving your freedom through property. freedompropertyinvestors.com.au The Five Forces by Lianna Pan

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Opportunities exist where others fear to tread.

And in post-recession Australia, you have the opportunity to take advantage of an amazing boom period.