There is good news for people interested in investing in property at the moment: the Reserve Bank of Australia (RBA) stated today that interest rates will continue to remain at the record low level of 2.5% into August. Australia has now had the same rate for a year, since this time in 2013. Mortgage rates for all the major banks and lenders have continued to fall below 5% during the same period.
According to analysts, any indication that a rise in interest rates was needed, such as inflation or the flourishing housing market, was being offset by the high Australian dollar.[i] Indeed it is more likely, coming into the Christmas period, that rates may even need to be lowered thanks to mixed economic performance predicted for later this year. This includes higher unemployment levels, a decline in investment in the resources sector and a lacklustre retail sector in which consumers are still wary of making big purchases.
The outlook for the property sector remains rosy, however, thanks to the record low rates and the competition among banks for their mortgage loan offerings. According to latest figures, auction rates in Sydney and Melbourne continue to rise steadily. As those in the property industry are well aware, Sydney in particular is seeing unprecedented demand from people investing in property, and real estate agents are suggesting that this momentum will be seen continuing into the busy spring market later this year.
The majority of analysts believe the steady nature of interest rates at record lows will come to an end sometime next year, although it is highly unlikely that the rises will be sudden or steep. The Commonwealth Bank chief economist stated that their analysis suggests the RBA will consider raising rates beginning in February 2014.
It is recommended that anyone investing in property at the moment consider locking in fixed rates for part of their mortgages. This is also a reminder that planning for future economic events such as interest rate rises is an important part of a property investor’s strategy. Having a 10 to 15 year financial plan should include ways to cope in the event that the costs of the mortgage go up each month as well as contingency plans in the case of unexpected events such as a tenant not paying rent or the property remaining empty for any length of time.
Being aware of the current economic environment – doing your homework and getting the right assistance – can also make the difference between being blindsided by events or having plans already in place and taking advantage of opportunities that others may not know about. One of the ways a professional property investment company such as Ironfish can help is by giving you access to their extensive research tools, industry experience and “on the ground” knowledge. They can help you create a long term property investment plan that takes into account both macro and micro environmental factors as well as your individual circumstances.