Stock markets in chaos. What about Australian property in 2008-2010?

With the Wall Street meltdown eroding confidence in the share market globally, it is anticipated that the Australian residential property market will receive a boost in cash flowing into it that is taken directly out of shares, albeit at massive losses.

Trillions of dollars have also “moved” into cash as people liquidate out of stocks. At some stage, this cash will look for a home and people seldom stay in cash for too long.

Following the World stock market crash of October 1987, billions flowed into real estate from the share market and a similar pattern is expected with people looking for direct ownership of assets in stable, solid markets - and residential is just that.

In 1987, the Dow Jones fell some 23%, and the Australian all ordinaries fell some 42%. Why did property prices rise between 38%-54% in Australian capital cities in the 24 months immediately following the crash? (source: Residex October 1987-October 1989)

First, cash needs a home. Many people who have been panicked and lost a lot of money, will feel very reluctant to reinvest in similar financial instruments, and stock markets again. At least in the short term.

As the flight to safety continues, many people who chased high returns move back to investment fundamentals and for many that means property.

Will this happen right now in Australia? No one knows the future, however the Australian economy remains stable and stronger than most, furthermore Australia is seen as a safe haven.

Secondly, there is a chronic shortage of construction and new houses being built all around Australia.

In contrast, in the USA for example, there are reports that literally millions of homes have been oversupplied.

Australia doesn't have suburbs full of empty houses awaiting mortgagee sales. Instead we are not building enough houses. Not nearly enough. I have experienced an influx of enquiry in the last few weeks, since the cancellation of several large developments in the Brisbane's CBD, including Empire Square (Westin Hotel).

From a supply and demand perspective America is over-built, there are just too many houses. In Australia it's the exact opposite - we are not building enough homes and our occupancy rates for rental properties have now reached record highs.

Finally, migration in 2007 was at an all time high, with over 250,000 new migrants arriving. Australia's recent economic boom also led to the government increasing its skilled migration quota by 31,000 places. Australia opens its doors to about 300,000 new migrants in the 2008-09 financial year. With construction levels for new homes and apartments at record lows, where will all these people live? However there maybe a possibility according to Minister Chris Evans that the country may see a decrease in its migration quota next year.

Certainly it is a great time to be a landlord if you already own property. Rents are rising, and are likely to continue upwards for some time, for years to come. There is no sign of occupancy rates easing and interest rates are falling rapidly.

With the world events over the past few weeks, it is highly likely that even more migrants will want to come to Australia next year.

Foreign investors are increasingly seeing Australia as a “safe haven” and the low Aussie dollar will attract them to acquire Australian assets. They have effectively had a 20%-40% “discount” on Australian property prices because of the lower dollar. Enquiry levels from overseas have soared at North South, mostly Expats and Foreign investors.

So, is now the time to invest in Australian Residential Property with the financial turmoil?

If history is any guide to the way the residential property cycle flows in Australia, it would be fair to say that conditions are now perfect for acquiring the 'right' property, if you have the capacity.