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There was a time when I was very bullish on property. After narrowly getting away with the downturn in 1990, I undertook six successive developments over the next 10-12 years.
Surprisingly, all went pretty well so naturally I congratulated myself on my good planning and intelligence. However, at a casual Sunday lunch, a veteran developer told me candidly that you take a ‘caning’ on every seventh or so deal – there was no reason given to this particular pearl, just his view. I was about to embark on my seventh deal so I dismissed his home grown anecdote and sought conversation elsewhere.
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Well, I got hammered, of course. The fact is, the market is bigger than all of us – and our best results are just as much a condition of good luck as good planning. Our love affair with property is well documented.
But maybe we need to adjust our focus.
Real wealth is created through business: commerce in its pure sense. It’s about turnover, the observance of cash inflows and outflows – and perhaps not the pyrrhic victories we see on paper. An increase in a property price real or imagined can only be crystallised on a sale. It doesn’t generate wealth. It doesn’t engage with the community.
Senior economists tell us around one in five Australian taxpayers is a landlord, with approximately 13 per cent of these taxpayers taking advantage of negative gearing, all relying on capital gains to offset income losses. In truth, it’s a tax-based investment strategy – a strategy subsidised by the government. Would not an income-based investment strategy make more sense?
Perhaps our answer lies not in the government providing subsidies for individuals to buy more houses, but to provide those incentives to encourage our SMEs. That is, to get our population business-focused. Building a strong business has reciprocal benefits that far outweigh the isolationist traffic that our negative gearing policy currently promotes.
So what’s the plan when the music stops?
Riding an inflated property market isn’t sustainable. Enjoy it while it’s here, but plan ahead for when it diminishes. Diversification is an obvious contingency, but the astute broker will actively broaden their portfolio now – particularly with SMEs and business clients who have the ongoing requirement for finance. Pursuing SMEs and understand their requirements will equate to an alternate revenue stream that is independent of the property pendulum.
We encourage brokers to diversify as a point of competitive advantage that equates to greater revenue and a solid lending platform that buffers market cycles. Talk to us and realise this market potential with confidence.
