Frank Gelber

By Tina Perinotto

11 May 2012 – Frank Gelber of BIS Shrapnel told the Property Funds Association conference on the Gold Coast last week that other than mining, the country is “pretty well in recession.”

Property was “bumping around the bottom and trying to come off the bottom, and the investment industry just isn’t out there.”

The corollary was that this is precisely the time to invest.

But it’s not happening.

Gelber said those who took the risk, would be rewarded in three to five years. It wasn’t much of a risk, when you took the medium term view, rather than the searchers of quick one year gains – “fools gold”.

The real risk he said was in the “financial engineering boom” especially towards the end of it. “After the GFC [global financial crisis], the risk went. There is not a lot of downside now.”

Even the pundits who said residential property would fall by 40 per cent had now realised this would not happen. “The market doesn’t work that way.”

A major problem is the illogic of sentiment about Europe.

It did not have much direct influence on Australia other than the financial drivers for the banks but it was nevertheless impacting on the local markets sentiment.

Reconstructing European economies was a massive task. “Think about the adjustment some countries have to make to come back to competitiveness,” Gelber said.

The only way to adjust, he said, was a “grandfather of a recession.” With major falls in wages and asset prices”.

It can be done and countries can survive and even flourish afterwards. Gelber pointed to Hong Kong which had a four year recession and  had since gone “from strength to strength.”

“I don’t think [European countries] will do it.” The alternative was long hard haul.

Australians were picking up on the mood. But he said: “It’s not our problem. Even if the worse happens overseas.”

“Dreadful politics ” was another note to add on the downside.

But Gelber said the pessimism was misplaced. “We’re not going to fall into a recession. We’re bumping around the bottom.  Property is part of that.”

Employment growth in 2010 was 3.3 per cent – probably too strong, so in 2011 “everyone cut back and employment growth through the year was zero.

“But just as 3.3 was too strong, zero was too weak and we now need to employ the next round of people.”

Employment growth was 1.5 per cent in the year to December. But nothing will change too quickly.

“It’s going to be a slow build.”

GFC is a correction
What is happening in Australia, he said is an “extremely painful process of structural change.” The GFC was a correction, he said, not just a shock.

“A lot of people think we’ll get back to pre-GFC levels, and those yields.”

But while there was yield compression at the lower end of property, at the prime end there was not. And largely this sector escaped the scourge of the financial engineers because yields were too low to attract them.

Sydney’s commercial peak will be a slow build up to 2019 and will only pick up momentum at the end of the cycle, he said.

“Sydney investors know Sydney will never recover ever again  so the market isn’t building enough and demand is already more than supply.”

The other side of the coin was that Melbourne went on a strategy of cheap land, not just for residential property but also industry and commercial. This kept a lid on prices and made Melbourne a more cost effective place to do business.

In Queensland, he said, “Anna Bligh was blamed, but the truth was investment fell out of bed and now the new premier can take all the credit.”

According to Gelber investment was now locking into place and Queensland was now set for an “almighty boom.”