The Big Money is all in on property. This is why:
I talk a lot about property from the mum and dad perspective. From the doing it myself with a few mates perspective.
And I’ll challenge anyone to show me a better wealth engine than property.
But it is the super interesting thing about property. It offers you opportunities if you’re singly mum on a pension, and it offers you opportunities if you’re a massive fund managing money for “local wealthy investors and global institutional investors.”
Like Qualitas. They invest money for people, and have a particular eye for property. 75% of their investments are in residential.
Anyway, the Australian Financial Review asked them to explain why they were raking in the money hand over fist right now.
The TLDR: “Dealing with Australia’s epic housing shortage is going to take an epic amount of money, and we happen to have an epic amount of money.”
Australia needs $115 billion in capital to build enough new homes over the next four years to simply keep vacancy rates steady and not worsen, as the country’s chronic undersupply and rising population drive the next development boom, non-bank lender Qualitas says.
With the country needing an estimated 300,000 new homes – or 75,000 a year – over the next four years just to keep vacancy rates constant, that was the required capital, based on a median unit value of $638,000 and a loan-to-value ratio of 60 per cent, Qualitas boss Andrew Schwartz said.
Just quietly, I think those numbers might be a tad conservative. 75K a year? That’s a quiet year in the building sector, and the Labor government has committed to delivering 240,000 a year over the next five years – not that they’ll get anywhere near that number.
But sure, let’s say it’s “just” 75,000 a year. If that gives us $115bn, is that a lot of money?
You betcha.
“That number, $115 billion, is 54 per cent more than the entire current exposure of traditional banks today,” Mr Schwartz told The Australian Financial Review. “That’s the tailwind we’re basically experiencing.”
Basically, it’s a gold rush and everyone wants to get in on it:
Australia’s housing demand, driven by both population growth and structural changes towards more, smaller, households was attracting investors, many of whom were looking at the sector for the first time, Mr Schwartz said last week as his company reported $2.1 billion in new funding commitments in the six months ended December 31 – more than in any six-month period in Qualitas’ 15-year history.
It’s clear the new development cycle has started. Over the six months to December Qualitas started funding 1180 new apartments, up by more than two-thirds from 700 in the same period a year earlier.
“I think we are at the start of the fresh next cycle,” Mr Schwartz said.
“We’re headed into better times because more projects will make sense. We’re seeing more and more developers pushing the button, saying “Now we’re ready to develop.”
I mean sure. He’s the CEO and he’s talking his own book. But the general point is right. Australia’s massive housing shortage is a massive problem, and it’s going to take a massive amount of money to fix it.
All of that equals massive opportunity.
JG.