SSS – October 2014

RBA Cash Rate

Not surprised that it again was left on hold at 2.5%. The US is actually now talking about possibly lifting their rates as their economy slowly strengthens. Rates will definitely rise but I really doubt we will see anything here in Australia until around mid-next year.

Of note the US Federal Government is currently in deficit to the tune of $18 trillion (yep..$18,000 billion). Any increase in interest rates now will be a problem as American tax revenue won’t be enough to cover the interest liability thus putting the country further into debt.

The Aussie dollar is now around $0.87US. This could be a double-edged sword in that we should see a drop in unemployment as exports increase – BUT an increase in inflation as we now have to pay more for our imported Sony TV’s, Japanese cars, Apple i-Phones and Arabica coffee beans at Trashies. On the flip-side, any increases to inflation and employment always translates to higher land prices. (Keep that one in the back pocket for the next Sunday BBQ.)

Interest Rates

If you are currently paying more than 5.1% variable on any residential lending then get in touch with your lender and ask for a reduction. NAB DHOAS loans should come down to 5.08%.

Property Bubble

This is where I genuinely can say – ‘Whatever Trevor.’ Are parts of Sydney and Melbourne overheated at the moment? You bet they are! But so were bananas when cyclone Larry and Yasi swept through a few years back. In reality even though we’ve seen 16%+ gains in Sydney this last year, its average annual growth rate over the last 10 years has only been 3.8%. (Source: RP Data). This is simple market forces at play and of course the economic-rent being monetised by the banks and extracted by the land owners. Of course the media are going to exaggerate it – if it bleeds, it leads.

Call it Déjà vu for some, but attached here are a couple of newspaper articles from 1971 and 1989 about property prices. Does any of this sound familiar to today?

Property Markets

We’re still keeping a close eye on investment opportunities particularly in Queensland and the northern corridors of Melbourne where population and infrastructure is projected to increase. There’s also been some large infrastructure announcements in regional Victoria including Ballarat, Bendigo and Shepparton.

Queensland (Brisbane) still dominates though for capital growth potential. Pimpama/Coomera, Logan, Eastern Ipswich, Springfield, Northlakes, Cairns and Marsden infill sites are areas we are also keeping a close eye on. Dual-occupancy dwellings also represent terrific yield potential but come at slightly higher price points.

Developers in Toowoomba have now increased their land prices in response to increased demand. This is obviously a great sign for those that secured lots up there earlier this year.

For our members up north, Bellamack have just dropped land prices in their latest release. I personally feel this is worthwhile investigating particularly for the ‘granny-flat’ designs but the price-points are much higher circa $720K with yields of around 6%. Let me know if you or someone you know wants to look into this.

Credit File

Just a reminder that your credit file is your reputation. Without preserving and maintaining its integrity, you run the risk of restricting the amount of credit you can safely access and therefore invest with. Always aim to pay all bills on time, and if you must go overdue then ensure you contact your creditor and make other arrangements. This is particularly important for those deploying soon. The ADF Financial Services Consumer Council has more info which is also covered as part of Force Prep.

Quote

They know what will happen in the future because they have studied the past – Sir Winston Churchill

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