Don’t Forget the Impact of Global Economies on Property Investing

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.