This week I had the pleasure of attending a seminar with a man I would describe as a futurist or a scientist who uses demographics to pick future economic trends.
Harry Debt Jr. of Dent Research has written many books with many predictions and a lot of what he’s said has come true. His latest prediction is that the China bubble will burst some time in the next 1 to 2 years, and the ripple effects for assets like Sydney property will be enormously negative.
He’s also predicted the collapse of Japan in 1990; the great bull market in stocks between 1982 and 2007; the massive property collapse associated with the GFC.
Most importantly his predictions are based on indicators a ten year old could understand. You see, he looks at what people require at different ages of their lives and in particular the people of the largest population groups. For example, the first home, the family home or a retirement holiday, nursing homes, palliative care and ultimately funeral bonds. He has calculated that the maximum spending potential of a human is on average 47-48 years of age.
The period we live in now with the rise of the baby boomers, and now their retirement, has been unprecedented. The following generations (gen x, gen y and millennials) are much smaller in number than the population of baby boomers. Thus the number of 47 year olds is less for those generations than the baby boomers.
For countries that are insular and don’t have high immigration levels, this has been disastrous for their property market. In the extreme case in Germany, the government has been demolishing neighbourhoods to take property stock out of the market and create parklands.
Dent claims that there are eight million vacant condos in Japan. Australia is extremely lucky, we are an immigration destination of choice. Why? Because we have fantastic education institutions, beautiful clean and pollution free cities and beaches, excellent weather, we have a substantially regulated system and a strong financial system. In addition, people can come and learn our language, (english) and this seems to be very popular in the world, particularly for Asians. It turns out many Asians also choose Australia to be “home” over other destinations because it’s easier for communicating and traveling back to Asia to visit friends and family due to similarity of time zone.
Not surprisingly, a large proportion of immigrants into Australia are Asian, many of which are Chinese. The China bubble that Dent predicts will burst is based on his view that they have built things for nobody – cities, apartment blocks, roads – that don’t get used. He estimates that 27% of all condos in China are not even hooked up to electricity.
The one child policy together with the cost of living in these new cities will burst the bubble as the ageing Chinese population slows it’s spending just as Japan and Germany have. The good news is he’s not very good at picking the point in time of these bubbles breaking and as such, in the meantime Sydney property will benefit from the Chinese and other immigrants joining our property market party which could go on for another few years.
Fortunately for Australia there may be some short term negative effects in the property market but due to the growing number of wealthy immigrants making Australia home, our population is growing and will help the appetite for Australian property in the long term.
*DISCLAIMER: This post is not intended to be taken as financial advice of any kind. Please consult a licensed financial advisor or accountant for advice.