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They say it’s hard to buy a Porsche right now…

By Richard Harding

A three-part look at the economy and market.

You might scratch your head reading this title from a real estate agent talking about the luxury car market. But it’s all related. I’m also curious about the reported “return to offices” for CBD-based workers. And if you’re about to upgrade to the new iPhone12, you’re about to pay a lot more for less.

The pandemic and luxury purchases

Yes, the pandemic remains a challenge for many people and businesses around the world. Yet, overall, our economy’s extraordinary recovery from its first recession in three decades has shown our nation to be resilient. And to put this pandemic into some perspective relative to the length of, say, the first and second world wars, the time period is, so far, fairly short.

Covid has had a divisive effect on our economy. That six per cent of people are unemployed is at odds with the 94 per cent who do have a job and are spending confidently. There’s money flowing in key markets, that’s for sure.

In the lower north shore, it’s evident that buyers are capitalising on the (record) low cost of borrowing, and diverting the annual overseas travel budget into other areas: houses, renovations, cars, local travel.

A lower north shore local lamented to me recently that the waitlist for his new Porsche was eight months. Days later then I read in The Australian the comment: “Try and find a luxury car in Melbourne today; you certainly can’t buy a caravan.” (1)

The influx of 350,000 expats back to Australia has buoyed our real estate market considerably. Internationally placed Australians are back, and many want to live in the lower north shore.

Locals are upgrading too. The experience of working from home has been a catalyst for some sellers this year. And while many homeowners in our patch held their housing assets during the initial pandemic lockdown, we did see some panic selling last year.

But, since then, we have seen limited disruption to the demand for prestige homes in good streets.

The invisible stampede back to the CBD

On the other hand, CBDs in Australia have been rocked by the pandemic. What will our city centres look like going forward? I keep reading that people are returning to the offices in Sydney but it doesn’t feel like it, does it?
There is no definitive estimate of the proportion of the workforce that has worked from home during the pandemic but most broad estimates are 65 – 70 per cent. The pre-covid average was three per cent.

One telling stat is if utilisation rates of elevators in the Sydney CBD which are reported to be between 17 – 20 per cent of normal usage… it begs the question, are the other 80 per cent using the stairs? The question for city office towers and investors (including your and my superannuation funds) is to what extent the proportion of people working from home will return to the historical average. If the number of people working from home is higher, then it may reduce the demand for space in CBD office towers which leads to reductions in rent and the associated value of the buildings.

The Apple iPhone paradox

The iPhone12 is thinner (by about 11 per cent), smaller (by 15 per cent) and lighter (by 16 per cent) than its predecessor. While all those metrics are trending down, one is trending up. The price: up 12.5 per cent! But that’s not the most surprising Apple figure. In five years, since 30 June 2015, the share price of this stock has risen over 300% while profits have improved only 1.15 per cent. Apple’s FY15 EBITDA was $77.9 billion, in FY20 it was $78.8 billion. Go figure.

 (1) The Australian, “Economy ‘storms back to growth’”, Richard Gluyas, 13 March 2021

If you would like any assistance or advice in regards to the current market, my team and I are here to help.

Richard Harding | 0411 875 022 | richard.harding@raywhite.com

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