BRIC and mortar set for boom

By Terry Ryder, 11th February 2012

The world order is changing and the re-shaping has great relevance for Australian real estate.

It may not be readily apparent why office construction in the Chinese city of Chongqing makes Perth housing a good investment, but when you join up the dots it makes considerable sense.

This is top of mind because I’ve been reading a Jones Lang LaSalle report titled A New World of Cities. It talks a lot about global GDP, commercial building and “the geography of economic output”, but reading it gives me confidence in the future of Australian residential property.

In the final analysis, it’s all about BRIC and mortar. The emergence of new economic powers such as Brazil, Russia, India and China (collectively known as BRIC) provides the underpinning of Australia’s new economic importance – and from that springs long-term demand for real estate.

The JLL report reveals the new world order in a number of ways. Seven years ago the Top 10 cities for commercial property investment included six in the US and only two from Asia. In 2011 only two US cities made the Top 10 and there were six Asian cities - Tokyo, Hong Kong, Singapore, Shanghai and Seoul – with Beijing and Taipei just outside the elite list.

Even more pertinent is JLL’s list of the world’s fastest growing cities today: the Top 10 are all in China. The report talks about “the massive long-term potential and emerging critical mass of activity in Chinese cities, which outweigh the opportunities in other emerging markets”.

The report identifies the “China50” cities that are being “transformed by an unprecedented program of city building and modernization”.

The report says: “The China50 are expected to account for 12 per cent of global economic growth over the next decade.”

This fits well with my view that Australia is not about to have a resources “boom” but a long-term sustained period of growth under-pinned by demand for our resources from the emerging powers in the world economy.

These include not only the BRIC economies but nations such as South Korea, Indonesia and Malaysia – all countries that are in our neighbourhood and heavily involved in the growth of our resources sector as both investors and customers.

We’re talking way too much about Europe and the short-term – and not nearly enough about the emerging economies in Asia and their long-term impact on the Australian economy and its real estate markets.

Europe be damned. The growth is happening much closer to home and that is creating unprecedented demand for Australian iron ore, coal and gas.

That is putting a rocket under our commercial-industrial markets, with businesses expanding thanks to contracts handed out by the companies advancing the mega resources projects.

This year that will translate more and more into demand for residential property.

Perth is already the leading Australian city in terms of performance in commercial, industrial and hotels markets. It’s been a long time between celebratory drinks in Perth residential property but I expect that to change this year.

But the city racing from the rear of the field to challenge for the lead is Brisbane. Brisbane is rising as fast as the flood waters did a year ago, as coal and coal seam gas activity enters an unparalleled growth phase.

CommSec’s State of the States report recently recorded WA as the leading state but said Queensland was catching up fast “underpinned by a strengthening resources sector and building reconstruction”. Queensland's quarterly economic output is 19% above its long-term average.

There’s further evidence in the JLL report.  A New World of Cities lists Brisbane as the No.1 growth city on the planet, in terms of GDP growth, between now and 2020. Perth is ranked eighth in the world amid what the report predicts will be the “decade of change”.

As I have said in this column previously, the two worst-performing capital cities in 2011 will be the market leaders this year.

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