Something many property investors fail to consider is the impact of the emerging global economy on national, state, regional and local property values and sales. Many pay close attention to property cycles and trends but so many forget the importance of global drivers.
Blogger: Paul Wilson, Educating Property Investors, We Find Houses and We Find Finance
Global drivers are extrinsic drivers over which we have no control, but which can cause us to either make or lose money in our investments so the wise investor will pay close attention to events in other parts of the world, especially those events which will impact their properties for the better or worse.
To illustrate this point, let us consider China.
Many already understand that a large driver of mining in Australia is the result of the growth in demand for raw materials to Chinese manufacturing. However, many fail to recognize that if China experiences a decreased demand for products, this will spill over to communities providing those raw materials. To better understand how this works, consider the following.
Let’s look at this graph of Chinese manufacturing exports as of 2011.
Notice that the European Community take the lead with around 20% of the imports from China and the Americans consume another 20%. Then Hong Kong, Japan, and ASEAN nations combined make up roughly the same as the first two combined (about 40%). This in itself does not tell us much other than if there is a problem between the United States and China which causes exports to drop, the result to Australia could reflect as much as a 20% decline in property demands and prices. But that still is fairly general so let’s see if we can narrow such a potential and make this information useful to property investors.
Look at the next chart from ABS (refer to China).
As this chart shows, the primary exports to China from Australia are iron ore, wool, copper ore, crude petroleum, and aluminium. This chart reflects the rates as of 2001. It’s still not that useful for today.
However, according to that government source which provided the chart, “The value of Australia's exports to China have more than quadrupled during the last ten years from $1,458 million to $6,846 million. It is now Australia's fifth largest export market.” So the rates of export have grown by four times. That is useful for it means that the only change has been an increase.
Now look at that chart again. Let us take just one raw material export, iron.
There are numerous locations throughout Australia where Iron ore is mined and many of these are near Capital Cities. These will be largely insulated from even major declines in demand for there are numerous other industries which will limit the impact. However, if you have been investing in smaller regions which rely on this industry, you especially want to pay attention to Iron exports. On such location is the central portion of the Northwest Territory, near Orlando and Tennant Creek. There are currently two mines in this area and should something happen to Iron demand, these areas will surely be affected.
If you wanted to get even more concise, you could research the names of the companies holding these mines and even the locations (likely in China) of their exports. This information is all a matter of public record provided by government agencies. Then you could even discover what products are manufactured by companies receiving these materials. For instance, if there occurs a decline in automobile demand in the EU and this is the location that the factory which receives the Iron ore from the location of your property is located, you may decide to quickly sell the property before the drop in production occurs.
The point is, if you have or are considering properties which rely on the export of raw materials for the support of the local economy, you need to pay attention to global events. If you do, you can make far better deals on property than if you don’t. Paying attention pays… literally.