Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Sunday, 19 October 2014

Cinema tickets outpace UK house prices

Investments for the kids

I was discussing with my other half this week what investments people should make for their kids. 

She advised that her parents had put money into savings bonds for her which matured when she was 18 and that she later used towards a deposit on her first house.

Stocks and shares New ISAs or "NISAs" (previously known as ISAs until 1 July 2014) are probably the best bet today, given that they are capital gains tax free and every adult in Britain has a £15,000 allowance in 2014/15 (the limit being moved up from £11,880 in the prior year).

NISAs have the appeal of flexibility, with some providers allowing monthly contributions or lump sum allowances.

Price inflation

In an article this week The Daily Telegraph took a look at UK price inflation across a range of goods, underlining the importance of investing your money wisely in order to protect its purchasing power.

There has been a huge increase in the price of cigarettes, cinema tickets and stamps in Britain over the past four decades.

A lot of other stuff has become comparatively cheaper as compared to wages, however, including international travel, new motor cars and fast food, for example. 

"Russell Quirk, chief executive, said: "Across the UK it has been well documented the rise on property price, however when you look at other items it’s actually more in-line with other expenses than most would think." The average weekly wage had risen more slowly than all five of these high-
inflation goods, up 1,616 per cent. The study indicated that £32 was normal forty years ago, while £517 was the average today.

However, the study did acknowledge that central London prices were an exceptional case. For example, in Leicester Square, the rise could be as high as 3,444 per cent, it found."
While UK house prices have outperformed wages over the past 40 years, the rate of outperformance is not as high as one might think, while interest rates at the end of 1974 were at 11 percent as compared to 0.50 percent today. 
Housing affordability today is broadly unchanged for the "average" household, although clearly this is not the case in London where prices have continued to boom.
The past 15 years has not been all that great for the UK share markets, the FTSE100 having been well overvalued around the turn of the century (recall the "tech stock bubble" which also played out at that time? and suffering two major corrections since that time, but of course a basket of quality companies or an index fund has paid very handsome dividends over that period.


Although the physical asset of gold pays no income, gold has been the biggest outperformer of the past decade, approximately tripling in US dollar terms, although you would probably have been even happier had you sold at the market peak of US$1900+ in 2011!


The big surprise performer in the UK over the past 10 years has been farmland which is up by an extraordinary 187 percent to £19,000 per hectare.

This is partly because they are "not building any more of it" (or draining it!) while population growth will cause some land to be rezoned (such as for the HS2 project) and largely because certain farmland in Britain continues to attract inheritance tax relief or even total exemption.

Inheritance taxes are brutal in the UK, capturing even average families in the south-east of England in its 40 percent bracket, and the wealthy have turned to farmland as a legal means of IHT avoidance (clearly not the point if the exemption when it was introduced). 

I'm staying on a farm myself at the moment in Lincolnshire, and every second farm around here seems to have a "Beeswax" sign out the front, that being the company of vacuum billionaire Sir James Dyson. Dyson has "hoovered up" (boom-tish) £150 million of farmland in Lincolnshire of late, and other tycoons are doing the very same thing around Britain.

Much of the land around these parts sits at or below sea level and seems an unlikely location for rapid land price appreciation, the Fenland having been progressively drained (see above) centuries ago from the 1620s onwards using Dutch land reclamation techniques (some of the local place names reflect the Holland influence).

House prices are cheap - but farmland today is not. Agriculture in Britain has had a rough ride over the decades, yet farm owners are suddenly sitting on land worth previously unthinkable prices per hectare. Farmland has appreciated by 11,000 percent over the past 60 years, so it's been a grand investment over the decades.

Residential property

The consistently strongest returns over the past couple of decades, thanks the leverage available on buy-to-let properties, have comfortably been secured by residential property investors in Britain, particularly those who have concentrated around London and the south-east.

Prices took a serious correction nationally through 2009 but have more than recovered now in many locations and have boomed to new heights across London, where the ONS records prices as 39.5 percent above their pre-financial crisis peak. The UK all dwellings index is now at a record high if above 207, up from a base of 100 in February 2002.

Source: ONS