If the Reserve Bank’s move on interest rates on the 3rd February is anything to go by, the outlook for property investors this year is positive. Based on a number of economic conditions, the Board decided to lower the cash rate to 2.25%, down from the previous rate by 25 basis points. In its analysis, the Board cited several factors including sluggish growth in Australia and a fall in commodity prices as a reason to lower rates, thus providing a boost to the economy that would lead to sustainable growth. This is the first cut in rates it has made since August 2013, and it means that many types of mortgage rates are now at their lowest level in almost 50 years.
Most analysts believe that rates are likely to be lowered further later during this year or kept steady at the current rates. According to an analysis recently published by the Sydney Morning Herald, the value of investor loans for property also increased dramatically over 2014 – up almost 20% by the end of the year.
While the RBA’s recent rate decision came as a surprise to the market, it will no doubt be warmly welcomed by anyone looking to take advantage of the lower cash rate to purchase property in the near future. Investors in particular will be increasingly eyeing opportunities to lock in low rates to help them lower their costs and maximise their long-term return on their investment. This positive mood is being matched by data reflecting current consumer sentiment. For example, according to Westpac’s most recent Consumer Index, sentiment had increased from 93.2 in January to 100.7 in February – a move of 8%. Westpac Chief Economist, Bill Evans, suggested that the strong increase was a result of a combination of lower rates, lower petrol prices and a booming sharemarket.
CoreLogic RP Data Head of Research, Tim Lawless, believes that we are moving into the year on the back of a very positive property market, which should continue into 2015. With stand out property value increases of up to 31% over the past cycle, Lawless suggests that the rate of capital growth may be slightly tempered this year, especially in the Sydney and Melbourne markets. Brisbane, however, is likely to experience higher capital gain returns – with the capital city finishing the year with a rate of around 7%. The property markets in Adelaide and Hobart were also likely to exceed capital gain returns compared with 2014.
Overall, 2015 appears to be a good year to either break into the investment property market, or pay down existing investment loans in order to unlock equity for future investment purchases. First time investors are encouraged to do their homework about the current market conditions, create a long-term strategic plan and get assistance from professional property investment companies such as Ironfish to help them get the best start they can.