Autumn News Season – Economic Drivers

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In our second issue of the autumn season, we look at economic drivers affecting the property market, specifically interest rates and the influence of Asian investors.

 
Interest and loans ratios to harden
Over the past ten years, interest rates and loan ratios have exerted significant influence on the property market, with the downward pressure on interest rates fuelling the investment activity of our ever growing population. Highly liquid banks eager to get their funds working competed with offers of ever higher loan ratios, while property developers became increasingly enamoured by the perceived opportunity. This is now coming to an end at a time when there is an overhang of apartment stock in the market and many more units still to be completed.

 

The Reserve Bank could intensify this pressure later in the year by following the USA lead and edge rates higher. Rarely is there a single move when interest rates change direction.
There would be some repercussion in property to an extended tightening of credit. Recent evidence, reflected in official concern about lending levels, points to some action to dampen the activities of the short term opportunists in this market. Property is an investment for the longer term. We have, and always will stick by this maxim.

 

Negative gearing has been a stimulus to investor activity in recent years. It has latterly become a core issue of political debate that probably will not be resolved by the May budget – no matter what measures (if any) are introduced. The ALP leadership seems bent on eliminating the capital gains tax discount on investment properties, and perhaps, even personal homes if it comes to power in 2019 or an earlier election. The idea smacks of opportunism rather than sound commercial business management. Housing is one of the stronger areas of activity in the economy.

 

Regardless of impacts of interest rates, feverish demand, or the prospect of what lies ahead, it takes a steady hand to manage this terrain objectively. There are always opportunities out there, and identifying these opportunities is what separates the experienced investor from the enthusiast.

 

The Asian presence
The Chinese are noted for their capacity to look far ahead and be patient. Their investment focus in the Australian property market has been a major and increasingly stimulatory factor in soaring residential and commercial prices over the past few years.
The growth in housing investment from Asian investors could more be about their confidence in the long term potential of the Australian economy, rather than a short term hedge for Chinese investors against economic slowing at home.

 
We’ll explore this in greater detail with subsequent issues in our autumn news season.