Australia’s economy remains resilient despite clear challenges with the cost of living and the ongoing rental/housing crisis. We’ve had strong net migration figures for some time now and an unemployment rate persisting below 4%, indicating that we’re managing to find jobs for people who want them, despite the ongoing increase in population. Inflation and interest rates continue to be topical, and the slower-than- expected drop in inflation has led to many economists revising previous forecasts.
Despite mixed signals, new opportunities appear to be emerging. Read on for our insights and the latest developments at Trilogy Funds.
Market and economic overview
According to NAB Group Economics’ “Forward View – Australia” for April 2024, forecasts remain largely unchanged; with subdued growth prevailing, GDP growth of 1.7% is anticipated for 2024, with improvement expected in subsequent years. Despite this, the labour market’s underlying strength and the pace of inflation remain focal points, particularly in anticipation of key data releases ahead of the May RBA Board meeting. The unemployment rate, which saw a notable drop to 3.7% in February, is being closely monitored, with expectations of a slight rise by year-end.
The housing sector, as highlighted in NAB’s Australian Housing Market Update for April 2024, continues to see upward trends in home values, with a 1.6% increase in the March quarter. Despite challenges such as rate hikes and housing affordability issues, an undersupply of housing relative to demand persists, exerting upward pressure on home values.
Construction sector
CoreLogic Australia’s Construction Sector report reinforces the stabilising trend in national construction costs. While construction costs remain elevated, the quarterly trend suggests a moderation, with an annual change of 2.8%, the smallest rise since March 2007. This stabilisation is attributed to factors such as an inflated construction pipeline, although dwelling approvals remain below average (and in fact hit a 12-year low in January).
Consumer Price Index
The ABS Consumer Price Index (CPI) for the March 2024 Quarter revealed a 1.0% CPI increase, with an annual rise of 3.6%. Notable price rises were observed in rents, secondary and tertiary education costs, and medical and hospital services. This marks the fifth consecutive quarter of lower annual inflation since its peak in December 2022, with goods and services inflation both lower compared to previous quarters. Although the ongoing decrease in inflation is a positive sign, it’s worth noting that the RBA’s targeted inflation rate is being achieved at a slower pace than initially anticipated by economists. Consequently, driving concerns that the RBA still has a lot of work to do to bring inflation back to its target range 2% – 3%p.a.
As a result, many economists are pushing their previous rate cut forecasts out. Westpac Chief Economist and former RBA Assistant Governor Luci Ellis has adjusted her forecast from a September rate cut to November. Other economists have pushed their rate cut forecasts out to 2025, while others are even speculating that the next rate move may even be upwards.
Residential property
Last month CoreLogic reported another quarter of house price growth, with values rising nationally by 1.6% in the March quarter, demonstrating the continued strength of the residential property market. As reported in previous updates – property market strength is no surprise given continued demand growth and a lack of growth in supply.
While national construction costs and dwelling approvals still have a way to go, Trilogy’s development financing arm continues to support developers and borrowers to deliver new projects efficiently. It’s exciting to be a part of a market that displays such resilience, and also exciting to be playing a part in working through the nation’s housing and rental crisis.
Our flagship Monthly Income Trust provides us with the capacity to finance these projects while offering investors competitive returns from private real estate credit exposure.
Trilogy Industrial Property Trust’s Investment Opportunity in Brendale
In line with our commitment to delivering income performance and value to investors, last quarter Trilogy Funds identified an exciting investment opportunity in Brendale, QLD. This target acquisition for the Trilogy Industrial Property Trust comprises two modern buildings which are fully leased to Modern Star, Australia’s leading partner and supplier of educational resources to early childhood centres and primary schools. Notably, the asset represents exceptional value with a purchase price below replacement costs and a recent valuation obtained prior to exchange of contracts. We look forward to sharing more about this acquisition as information becomes readily available.
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This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the management investment schemes mentioned in this article. Application for investment can only be made on the application form accompanying the relevant Product Disclosure Statement (PDS) and by considering the Target Market Determination (TMD) available at www.trilogyfunds.com.au. The PDS contain full details of the terms and conditions of investment and should be read in full, particularly the risk section prior to lodging any application or making a further investment, together with the TMD. All investments, including those with Trilogy Funds, involve risk which can lead to no or lower than expected returns, or a loss of part or all of your capital. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy are not bank deposits and are not government guaranteed. Past performance is not a reliable indicator of future performance.
