Trade, tariffs and super: The big economic issues facing Australia’s commercial market
With Australia’s lending environment and the global economy constantly evolving, the 2018/19 financial year shapes as a fascinating one for Australia’s commercial property market.
This week, we take a look at some of the important economic issues that will impact the market over the coming 12 months.
Household spending is changing
In a recent Realcommercial presentation by demographer Bernard Salt, he highlighted a staggering change in the way Australians are spending their money.
As Salt says, the Australian wallet is changing, which is great news for retailers in certain industries, as well as for the owners of the properties that house them.
As an example, the amount of spending on women’s sports and leisure footwear and leapt by 357% between 2010 and 2016, while men increased their spending by 150%.
Spending on public transport, meanwhile, jumped a staggering 572%, while spending on informal childcare services soared 297%. Meanwhile, spending on home entertainment systems and other audio-visual equipment declined by around 75%, proving that for commercial property investors, staying abreast of retail and household trends is critical.
REA chief economist Nerida Conisbee says potential changes to superannuation that were flagged by the Productivity Commission in its recent draft report could have a significant impact on the commercial property industry.
Conisbee says that any changes could affect the purchase of commercial properties by super funds, which have been “big buyers” of commercial property in recent years.
Chinese reined in
The avalanche of Chinese money that has poured into Australian commercial property will continue to rapidly dissipate under new investment laws, Conisbee says.
And it is development sites that she says will be hit hardest.
“The drawback of Chinese investment in Australia will continue, particularly in development sites,” Conisbee says.
“The pool of potential buyers for development sites has really pulled back and it’s going to start to impact pricing now. A lot of it has to do with property being put on the restricted list by China. It’s far more difficult for them to transact.”
GST to have global implications
While online shopping continues to grow apace, the introduction of GST for all overseas online purchases will have consequences here.
As of July 1, all clothes, electronics and furniture bought overseas are incurring GST, forcing those foreign retailers to collect the tax on behalf of the Federal Government.
But Conisbee says many retailers simply aren’t prepared to do it, and will instead stop Australians from purchasing from them.
“Although we are seeing more and more people shopping online and it’s really disrupting the retail space, these measures will mean less shopping online,” she says.
“A lot of overseas retailers refuse to collect GST for the Australian Government, and as a result are shutting down their selling to Australia.”
Interest rate impacts
The interest rate and lending environment is dominating discussion in the residential market, but it will also rear its head in the commercial space.
“It’s not looking likely that there will be an interest rate rise this year, but at some stage they will have to rise and that will obviously restrict investment, not just into residential, but also commercial property,” Conisbee says.
“The US economy is growing very, very strongly, so a lot of those US rate rises are passing onto Australian lenders, and that influences property demand and mortgage rates.”
Trump's trade war
The tariffs that US President Donald Trump’s administration has begun imposing on foreign imports, particularly those from China, will also have implications for Australia.
Conisbee says that with many of the nations affected by those tariffs now retaliating, global growth could be stunted.
“There’s going to be a potential big restriction on global growth if they don’t get this thing sorted out,” Conisbee says.
“And it will impact Australia, particularly with regards to what’s happening in China, given how much we rely on not just as a trade partner, but even from a property perspective with how much Chinese capital has been funding residential development and commercial activity.”