Post Global Financial Crisis review – By Nick Lockhart, Property Investor

The cause of the Global Financial Crisis (GFC) was accurately reported but its' effect was not. Those economic commentators and professors who were allowed most media airtime continually misreported what the lagging effect of the GFC would be when predicting our property market would mimic those in the USA and UK. In my opinion Professor Steve Keen's fear peddling dire prediction that our property market would drop 40% in value by 2010 was completely irresponsible. Perhaps what he said was akin to providing (ill-founded) financial advice of a specific nature to large masses of people and if so, illegal under the managed investment act of 1988.

Over the past two years I have often felt like a lone voice warning of what I saw the lagging effect would be. The combination of strong population growth and the supply of housing drying up would in my opinion always mean that values would rise. My considered and sober assessments of the unfolding events throughout the GFC are on the public record; Now Finally The Truth Is Out!

Two years ago,before the global meltdown, official estimates were that our population would grow by 7 million people by 2049. Now those official estimates have been revised up to 13.5 million or almost twice the amount.

Treasurer, Wayne Swan recently unveiled Australia's latest official national population estimates. Our population is now predicted to grow from 21.5 million now to 35 million people by 2049. That extra 13.5 million people creates demand for about 6.084 million new dwellings (6,084,000).

Every country was impacted by the GFC over the past two years; but not all in the same way. Property prices in the USA and the UK responded to an oversupply and fell significantly. In contrast, Australia went into this crisis with an existing housing shortage and strong population growth (that has now been massively revised up).

The absolute number of completed residential properties has fallen since 2005; almost coming to a complete stop since the crisis hit.

Think of it as a pipeline. Healthy levels of new construction were being pumped into the front end; however, the output was still considered a trickle when compared with demand for housing. Along comes the GFC and the (financial) tap is turned off. Lenders refused to provide funding for new projects and even began to call in (previously allowed) debt levels on existing projects. Add to the mix the fear and uncertainty caused by the inaccurate and irresponsible reporting of the effect this would play out in our property market and you can see how the immediate drop in business, consumer and investor sentiment precipitated the collapse of thousands of small and medium sized along with a number of high profile developers. Sadly these high profile business failures have meant the loss of billions of investor's dollars.

A Snapshot Of Some Recent High Profile Collapses

Westpoint	Jan 2006	$320m
FinCorp	April 2007	$200m
Aust Capital Reserves	May 2007	$330m
BridgeCorp	July 2007	$450m
MFS/Octaviar	January 2008	$1.07billion
Raptis	February 2009	$780m
Hedley	July 2009	$150m

Now Finally The Truth Is Out

Anthony Richards, Head of the RBA Economic Analysis Department in a speech to CEDA Housing Forum in Sydney on Tuesday 29th September 2009 said:

“It is looking increasingly clear that Australia has avoided the large falls in housing prices seen in some other countries over the past two years or so. This is a good thing, because of the macroeconomic difficulties that have accompanied those price falls in some countries. But, looking forward, the risk is that we might move towards undesirably strong growth in Australian housing prices.”

“We have had strong population growth in recent years, coming from higher rates of both natural population increase and immigration. Holding household size constant, strong population growth implies the need for substantial amounts of new housing.”

I have heldand continue to hold firm to my convictions:

· That the real financial crisis that we all need to be alert to is the one we will personally experience when faced with retirement; if appropriate action was not taken beforehand

· That any individual considering any investment decision should hold off until they have right knowledge and clear understanding

· That the safest and most certain method for creating long term wealth is to invest in well researched, permanently let, median priced, residential property… located in areas of limited supply with growing demand and close to infrastructure, services and employment (NB: An investor's financial ability may make achieving all of the above not always possible)