July 19, 2016 by Dymphna 7 Comments

Land, the real asset


Land is the fundamental unit of value. It’s why wars are always fought over it. What else can you say that about?

Things seem to be hotting up in the South China Sea. As far as I can tell the dispute seems to be about who owns a solidly performing exchange traded fund.

Or what about in the Crimea? There’s been a lot of argy bargy between Russia and the Ukraine over control of an eagerly anticipated market listing and I.P.O.

And don’t get me started on the Kashmir region. India and Pakistan’s dispute over a parcel of commodity futures has been going for decades.

Ok, I’m being a twit, and I don’t mean to trivialise the plight of people born into war zones, but I’m making a point here.

Look at any flashpoint anywhere in the world (Wikipedia has a list of hundreds!) and they all come down to one thing – who controls land.

This point hardly seems worth making until you think about. Of course wars are fought over control of land. They always have been, since way back when Ogg clocked Ugg with a rock over the right to hunt on a particular patch of turf. The idea is so fundamental to our concept of war that we don’t even question it.

But look at it again through the eyes of an investor. From an investor’s point of view, land is just one asset in the constellation.

So why don’t we see wars over who owns shares, or futures, or currencies, or even commodities? Is ISIS going to make a claim for Apple because Steve Job’s has Syrian heritage?

The way I see it, everything has value, but land is fundamental.

Everything comes back to land. Oil and commodities come from the ground. Agricultural commodities come from the land. Companies exist and operate in particular locations. They have offices and factories somewhere. Even the most techy company has to have at least one person with their feet on the ground somewhere.

That somewhere matters. Markets emerge from controlled portions of land. The Australian market came into being because the Australian government established a set of rules over commerce within its jurisdiction – within Australia’s territory.

I’m not winning any history awards here, but you get my point. At some point, all economic activity must ground down into the earth somewhere. There are paper companies that operate out of tax havens, and aren’t really ‘governed’ by anyone, but they still connect to the land somewhere – even if that somewhere is ‘off the books’.

Until we colonise the Mars or invent floating cities in the sea or sky, land is the cornerstone of value.

This is where I strap on my cheerleader mini-skirt and do my “I love property dance” again. But you know, you knew it was coming. I’m a property investor. This is a property investor’s blog.

But I also genuinely believe that property – and land in particular – is different. It’s not called “real” estate for nothing.

Land is the fundamental unit of economic value. What that means is that as the economy grows, that growth must be reflected in the value of land.

Australia’s output is, essentially, the productivity of our land. The more we earn, the more our land is earing, by definition, more or less.

The more our land is earning, the more its worth. One of the key reasons property has had such a great run in recent years is that the Australian economy has gone twenty years without recession.

This connection with growth isn’t as clear in other assets. If the economy and the share market are growing, there is nothing to say that individual companies within the market will be growing. They could be dogs.

And if the economy is growing, what does that mean for something like gold? Who knows? If there’s a direct connection there I don’t know what it is.

Land benefits from the “rising tides lifts all boats” effect. To greater or lesser degrees.

So a bet on land is essentially a bet on human progress. If the economy is growing, so is the value of land.

I like this. I get this. I feel good about owning land, because over the long run, I feel good about where humanity is going.

In the long run, there is comfort in owning the one thing wars have always been fought over.

And this is all before we get to the built value of land – houses etc. Take that into the account, and the opportunities for anybody to add value and manufacture growth, then you have a stable asset class with lot of upside.

**vigorous pom-pom shake**

Of course individual outcomes may vary. Some parcels of land are more connected to value than others. Some markets get cyclical runs on with ups and downs.

But at the end of the day, land is the fundamental unit of value. And I don’t see that changing any time soon.

Do you agree?

Have you forgotten that the real value is in the land?

Can you see any solution to the land shortages in major capital cities of Australia?