While others tighten the purse strings, savvy investors are buying

Even before the events that led to Global Financial Crisis Mark 2 unfolded a few weeks ago, it seems that many Australians had bid farewell to the days of excessive, frivolous spending as a new era of conservatism took hold in an environment of global economic uncertainty. 

Let’s be honest, it wasn’t really that long ago that most of us were living beyond our means, chalking up credit card debt and treating the equity in our homes as an ATM as we became caught in the grip of mass consumerism. 

However, a survey by the Boston Consulting Group revealed that now one in two Australians plan to reduce discretionary spending over the next 12 months and saving their pennies – just like our parents did in the “good ol' days”. And I expect this trend will only become more apparent in the next few months. 

Of course this will reflect on their intention to buy property as either a home or investment, which will in turn impact on property prices. 

According to the survey almost half of us (48%) intend to pull in the purse strings in the coming year, as opposed to only 10% who plan to spend more and 42% who are happy to continue with their current rate of spending. And unfortunately things have taken have taken a turn for the worse economically since the survey was conducted. 

Interestingly, the Boston Consulting Group consumer sentiment report revealed that the only other two nations who were as reluctant to spend their hard-earned cash were the UK and Greece. 

While this increasing tendency to save rather than spend will lead to tougher times in the retail sector, overall it's good news for the economic health of the average Australian’s home budget, which will be in better shape to handle the speed bumps the economy will place in our way in the months ahead. 

One side effect of lower consumer spending will be to help keep inflation under control, which in turn will reduces the likelihood of interest rates rising in the near future, providing home owners and property investors with some breathing space as we head into uncertain economic times. 

However, the question remains – will this desire to save catch on and continue into the future, given our underlying love of spending? 

According to James Goth, leader of BCG’s consumer practice in Australia and New Zealand, the research highlights a shift in values from “conspicuous consumption to conscientious consumption… It’s not just about the hip pocket, it’s about it being ethical to not waste money and those that are spending up are doing so for ethical reasons rather than for status.” 

“The GFC has led to a shift in attitudes in spending and an element of that is a shift from carefree spending,” he says. 

This change in consumer sentiment is one of the reasons our property markets have slowed down, and this trend will put a lid on property price growth for the next few months. 

But the property markets haven’t come to a halt. People are still moving house because we’re still getting married, having babies, changing jobs or getting divorced. And savvy investors are still buying properties, but fewer people are doing so, and that’s reflecting in fewer property sales and flatter prices. 

It’s just the current stage of stage the property cycle and this too shall pass. But in the mean time, smart property investors with a long term focus are taking the opportunity to buy counter-cyclically. A proven property strategy that has created substantial property fortunes for savvy investors. 

The way I see it, as the economic woes around the world gather pace and the stock markets tumble it is likely that more investors will look for a safe haven for their money, and put it into property. After all, that’s what they did after the GFC in 2008, the tech wreck of 2001 and the great stock market crash of 1997. 

And there’s no denying that things are probably going to get worse before they get better. This is a time for cleaning up the excesses of the past and getting our financial houses in order to move on to the next stage of the economic cycle, which is the recovery phase. 

However, if history repeats itself, as it surely will, while the majority of Australians will sit on the sidelines feeling sorry for themselves, successful investors are looking for and buying investment opportunities created by the change. 

Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia's leading experts in wealth creation through property. He also writes the Property Investment Update blog.