By Victor Kumar
The Federal Budget included billions of dollars of spending that is likely to stimulate the economy.
Not only was a surplus announced for the first time in more than a decade, but $100 billion has been ear-marked for major infrastructure projects, as well as separate company tax cuts for small businesses.
From a property investor point of view, the infrastructure spend may spur on the value of their portfolios and may also reignite the stalled market because of a better performing economy.
The high-speed rail between Melbourne and Geelong is potentially a game-changer for that region but it’s not going to happen next year – and that is the point.
Infrastructure should only ever be one part of the property investment equation.
That’s because promises are made and broken, and even if they’re kept, it takes years and years for major projects to begin, let alone be completed, because of the billions of dollars involved.
Sophisticated investors understand that until such projects are fully funded, they are merely “nice to haves” – if they ever happen.
Current and future governments often change their minds about funding so you can’t give such commitments much credence, especially a few weeks out from an election.
One of the key metrics that I use when it comes to infrastructure is that I only start investing in an area – as long as the other fundamentals stack up – when a project has been funded and has started.
Some people think that waiting until construction has begun is too late, however, because major projects takes years to complete, there is still plenty of time if you get into the market at the beginning. Generally, people jump on board once this becomes tangible i.e. projects are near completion.
Demand before infrastructure supply
Let’s consider Geelong, given $2 billion was committed in the Federal Budget for the fast rail to Melbourne.
Now, I actually don’t consider Geelong to be regional because it’s only about 65 kilometres from Melbourne, which is a shorter distance than from Brisbane to the Gold Coast and similar to the distance between Sydney and Campbelltown.
In my opinion, it has more similarities to a satellite city than to a regional location.
The fast rail, when completed, will mean commuters can travel between Geelong and Melbourne’s Southern Cross station in just 32 minutes.
No doubt the announcement will inspire some investors to consider Geelong, however, some of us bought there five years ago.
Back then, I was picking up houses for about $190,000 to $280,000, which were all subdividable, too.
They have doubled in value in less than five years, as awareness and market forces came into play.
Geelong’s market at the time was soft because of the closure of the Ford factory but there were a number of fundamentals that made it an attractive investment proposition.
One of the main factors was its proximity to Werribee, which is set to be the new employment precinct for Melbourne and is only 20 minutes away from Geelong.
The CSIRO, for example, acquired land to develop their extended research facility, which is now under way.
Likewise, the nearby Avalon Airport was also set to be better connected via a rail link on its way, the missing ingredient.
Also, even back then, the train journey into Melbourne was less than an hour.
The ferry trip from Portarlington to St Kilda was also set to be upgraded to reduce commuting time, which is due to be completed by 2025.
The point I’m trying to make is, as you can see, the fast train to Geelong is a piece of infrastructure that will happen, but only after its economy and population has strengthened.
It is not the reason for its economic good fortune – rather its construction is because of a need that is already there.
Wise investors understand that, and consider major infrastructure – if and when it happens – to be a bonus, and not the sole reason why they chose to invest in a specific location.