Huge news this week with Australia – Brisbane, specifically – being awarded the 2032 Olympic Games.
What does it mean for Australia and Brisbane?
Well, first of all, the Olympics involves the housing and accommodation of 11,000 athletes and support staff, plus all those who (virus depending) visit our shores as spectators.
To put on the Games, it will cost the Queensland and Australian Governments about $5 billion – this will be spent on housing the athletes, entertaining everyone, upgrading/building the stadiums and all the technology involved to put on the show.
That’s a lot of money.
However, KPMG reckons it will generate $8.1 billion for Queensland and $17.6 billion for Australia in economic and social benefits.
We’ve got no idea about how they got to those numbers, but what we know from the Sydney Olympics, and Melbourne and Gold Coast Commonwealth Games events, is that it provides an excuse for Governments to fast-track infrastructure projects.
When that happens, it involves spending money and creating jobs. And when that happens, the economy generally prospers.
Tim Lawless – head of research at CoreLogic – said the following:
“Between when the Olympics were announced in September 1993 and when they were held in September 2000, Sydney dwelling values jumped by 60 per cent, almost twice the growth recorded across the broader combined capital cities benchmark region, which grew by 34.6 per cent.”
If you study the numbers, the house prices actually jumped by 82 per cent between 1993 and 2000.
House prices then increased by another 50 per cent in the three years following the Olympics, meaning they more than doubled in that ten-year window between 1993 and 2003.
Melbourne’s median house price increased by 20 per cent in the two years following the 2006 Commonwealth Games.
The Brisbane median house price increased by 10 per cent in the two years following the 2018 Commonwealth Games (albeit the Games themselves were held on the Gold Coast, where data is not separately reported).
No matter which way you look at it, we think it’s HUGE news for Brisbane if you’re an investor.
Although half of all Australians are in some form of lock down right now, Australians have built themselves quite the buffer in recent months.
The total value of Australian residential housing today is $8.3 trillion.
The total value of Australian residential mortgages today sits at $2.1 trillion.
However, as we mentioned a couple of weeks ago Australians have accumulated $205 billion in their offset accounts as of March 2021 (up from $171 billion in December).
In addition to that, we are apparently $271 billion ahead on our mortgages.
In other words, we have got $476 billion sitting in our offset or redraw accounts – should we need it in case of emergency – which is roughly 23 per cent of our total loan amounts.
We think we’ll be fine to get through this little bump on the way out of the COVID-19 recovery.
Finally, a cool concept we’re going to keep an eye on.
It’s called an ‘Own to Rent’ model and the latest company to do it is Australia’s OwnHome – which purchases homes for clients, who then move in, pay rent, build up equity in the property and then buy it at a pre-agreed price in three to seven years’ time.
Confused? Stay with us.
As an example, say you ‘buy’ a $1 million property.
For $5,900 per month, you rent that property and accumulate 2.5 per cent equity in the property.
In other words, at the end of year one you own $25,000 worth of equity in the $1 million property.
However, you also enter into a pre-agreed price increase on the property – 3.8 per cent per annum compounding.
At the end of year five you would have $125,000 in equity against the property value of $1.205 million (the initial $1 million plus its accumulated growth of 4.8 per cent per annum).
OwnHome do pretty well out of it as well, collecting the difference between the buyer’s repayments and the $25,000 p.a. that they are giving away in equity.
That works out to be $45,800 – a return of 4.5 per cent per annum – plus the 3.8 per cent per annum in price increase.
As the buyer, you’re effectively getting a 100 per cent loan at 8.3 per cent per annum. That wouldn’t be for everyone. We’d probably recommend trying to borrow the money yourself and/or lean on a friend of family member who might give you a friendlier deal.
But, as they saying goes, it’s better to have half of one than all of none.
And with Sydney’s median house price up nearly 20 per cent in the past 12 months, you would have done better than alright if you took this deal this time last year.
Either way, we’re all for people and organisations tyring to get more young Aussies into the housing market that otherwise might not be able to.
Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.
James and Alex