Local commercial property investors confused by mixed economic signals

The Labor government is crowing about its latest statistical achievements — low inflation, low unemployment, strong growth and booming investment.

So, why aren't Australians feeling an overwhelming sense of warmth and wellbeing? Probably, as my earlier articles have explained, it all comes down to an overall lack of confidence.

Most people are still expecting the RBA to further reduce interest rates. However, barring a European meltdown, that would seem to be rather unlikely in the foreseeable future.

You only need to study these graphs to understand the RBA's hesitancy — because clearly, the average measures of inflation currently sit at the bottom of the target band adopted by the Reserve Bank.

Closer scrutiny is required

However, when you look more carefully at the composite parts, you can better understand the make up the overall CPI figure itself.

As a result of the high Australian dollar, the prices for tradable items (mostly imported) contribute -2% per annum to the total figure.

However, the prices for non-tradable items (being domestic goods and services) are currently growing at 3.6% per annum. And the problem is that these represent about 60% of the CPI's final figure.

These domestic items include essential goods and services, which people need and use on a daily basis.

Things like electricity, education, healthcare and rent — where electricity alone has risen by 10.7% over the past year.

Therefore, the low "official" measures of inflation mask the fact that everyday consumers continue to experience living costs, which are rising on a monthly basis.

And this is what is fuelling the present uncertainty within the Australian community.

However, the real irony here is that, if overseas events were to cause the Australian dollar to fall below parity (with the US dollar), this would provide a welcome boost for all our exporters — not merely the mining sector.

And in turn, this would help restore some balance to our present two-speed economy.

Bottom line: These are certainly strange times. And yes, local investors do seem to be confused by all the mixed signals.

However, this doesn't seem to be deterring private overseas buyers, who see Australian commercial property as extremely well-placed for growth over the next five years. And in particular, Melbourne — as Dr Frank Gelber (of BIS Shrapnel) confirmed last week at the REIV's Annual Forecast Luncheon.

All these investors require is a well-located property with a solid tenant on a good lease, and their decision to buy quickly follows.

 Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.