What lessons can property investors take from the jujube?
I was reading the Australian newspaper on the 3rd March 2016 whilst on a recent trip up to Sydney and came across an interesting article on 'the jujube'.
What the hell is a jujube you may well ask... I did!
Whilst it may sound like someone with a stammer talking about a soft sugary treat, the jujube (or Chinese date) is a new potential fruit industry springing up in Australia, ready to ride the wave of the booming wealth being created in Asia.
Early adopters, like former fisherman Pete Dawson in WA are finding it a challenge to keep up with local demand - let alone selling into overseas markets, with demand for seedlings and the sweet fruit they produce already outstripping supply.
“We sell in a few farmers markets in Perth and Asian grocers; we sell everything we grow and still can’t keep up with local demand, let alone think about exporting yet,” said Mr Dawson, founder of the WA Jujube Growers Association.
As a hardy tree Jujubes can grow to around 3m, can tolerate drought and survive on bore water, or slightly salty groundwater; making them ideal for parts of Australia’s climate not suited to a lot of other crops. Currently, there are no major insect or disease pests of jujubes in Australia (unlike in China), making them easy to grow without chemical spraying and for the fruit to be certified as organic. Furthermore, they fruit in Australia, in the opposite season to that of the Chinese northerm hemisphere presenting a unique counter-cyclical opportunity for Aussie growers to take advantage of the burgeoning demand out of Asia.
So how does this relate to us, as property investors? I'm glad you asked.
This article highlights some of the classic factors that we at The Property Mentors look for when assessing opportunities for our members to profit from the Australian property market. It's hearty. It's opportunistic. And it's ready to pounce. Read on....
#1 Supply vs demand
In all markets, whether it be jujubes or property, the balance between supply and demand is a vital determinant of price movement. Where demand outstrips supply, upwards price pressures usually result and in the case where supply outstrips demand, price growth slows or falls.
For example, if we look at some inner city markets there are some clear oversupply issues (mainly apartments) in Darwin, Perth, Brisbane and Melbourne, or in some mining regions around Australia right now, where more properties either have been, or are being, created than the underlying demand can absorb. If we look at a simple measurement of underlying demand being Vacancy Rates (and we use 3% vacancy rates as the metric where there is a balance between demand and supply) anything above 3% vacancy rate is likely to have low, or no, or even negative capital growth, whilst vacancy rates below 3% represent tighter market, where strong demand which support or accelerate price growth in the near term.
#2 The early bird gets the worm(s)
The article highlights that in many markets, it is often the early adopters that end up taking the lion’s share of the profits. Those who can identify future trends or market opportunities and are brave enough to explore them early on, often create a brand awareness or market share of the industry, with some becoming household names in the process. For example Breville became synonymous with toasted sandwiches, Band-Aid with plaster coverings, Speedo's with Tony Abbotts favourite swimwear & Google with internet searching.
However, being an early bird is not without some risks. Sometimes, markets will move prior to the trend becoming established, or rival brands will pop up to dominate the space.
As far as Asian markets are concerned, Australian products and companies are known for trustworthy producers of high quality raw materials and finished products.
You only need to look at what's happening with Aussie-made baby formula, dubbed 'white gold', to witness the scale of opportunity Asia is bringing to Australia.
Whether it's baby formula, jujubes, or Aussie property - understanding the Asian market could lead to enormous profit opportunities for the savvy investor.
#3 Counter-cyclical investing
One of the final things this article highlights is that the jujubes grown here in Australia will provide fruit supply into the opposite season to the Chinese growers. This represents if you like a sort of counter-cyclical opportunity to profit from the reduced supply that occurs naturally in many agricultural products. Perhaps the most famous of counter-cyclical investors is the legendary Warren Buffet, of Berkshire-Hathaway fame, whose long term fundamental analysis of looking at markets has made him, and a lot of others, extremely wealthy.
One of his most famous of quotes is “Be greedy when others are fearful, and fearful when others are greedy.”
By his logic, most investors invest at the wrong time of the market, waiting for everyone to be moving in the same direction before jumping in. Whereas Buffet has made billions by doing the exact opposite of what most investors do. Now he doesn't do that without high levels of research and fundamental analysis of his target investments, but has the ability to trust in his own analysis to invest at a time when most other 'experts' and investors are unwilling to.
An example of this in the property market would be our investments right now into the Perth market. Most experts are warning that Perth’s market is amongst the worst in Australia, and suggesting you give it a wide berth - at least for the time being. However, we see these conditions as 'buying signals' for future development based on our understanding of the long term growth prospects for the Perth market (such as infrastructure spending, population growth) AND the fact that Perth has a great climate and operates on the same time zone as China.
Vendors in falling markets often become more flexible in both the price and terms they are willing to sell their properties for, and the more bad news in the media, the bigger the discounts to market we're able to negotiate. So bring on the bad news bears for the Perth market, and get ready to pounce on those buying opportunities!