Record Low Interest Rates Spurs High Levels Of Property Investment

In line with expectations, on Tuesday 4th March the Reserve Bank that announced that it had decided to leave official interest rates on hold. This means that, since August 2013, interest rates have now been held steady at a record low of 2.5%. Analysts believe this decision is based on the current relatively mixed economic conditions which see unemployment levels rising but positive indicators such as higher retail sales and export performance.

According to the Senior Economist for Australian Property Monitors, Dr Andrew Wilson, the outcome of future interest rate decisions will likely depend on clarity around unemployment levels, currently at the highest monthly rate since July 2003.

The Reserve Bank’s interest rate decision this month is again good news for anyone investing in residential property. With record low mortgage rates as well as increased competition between banks, the interest in residential property investment is at an all-time high. In a sign of the times, the National Australia Bank cut its range of fixed home loans to match those of the Commonwealth bank and Westpac earlier this month. This comes after the lender cutting its 4 year mortgage rates to the lowest level in almost 20 years. The increased competition will intensify as demand for fixed rate mortgages continues to grow.

The positive outlook on property investment is also reflected in recent survey by Commbank[i]. The survey asked 1000 home buyers whether they were intending to buy investment property in 2014, with the following results:

  • 47% of those surveyed stated that they had purchased or were considering purchasing an investment property this year.
  • Of these buyers, 65% owned their own home and were considering buying a new investment property, and 17% were planning to convert their existing property into an investment property.
  • Just over half of those surveyed agreed with the statement that “property is the best way to invest my money”
  • A third believed that “low interest rates mean it’s a great time to be investing in property”
  • 27% believed that buying an investment property was a good way to plan for their retirement.
  • Those looking to invest believed that they would look for a property based on its proximity to local amenities as well as the cost of the loan repayments.

Considering the current market an interesting fact from the Commbank survey was that a large majority (over 80%) of those surveyed felt that they would compromise on a number of factors to be able to get into the property investment market. These factors included size, price and location. Most people surveyed were planning to buy investment property in NSW, with Victoria and Queensland close behind.

The General Manager Home Loans at Commonwealth Bank, Clive van Horen believes that strong interest in property investment continues because of the relatively stable nature of property prices in Australia over the last ten years, as well as profits being high when factoring in costs. He also suggests that the key to successful property investment is research as well as getting advice from professionals who understand the investment market and can help investors make the best decision based on their requirements.

Potential residential property investors or those looking to grow their portfolio, with advice from property experts, should consider all the options available to them on the market including new and off-the-plan properties.





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