SSS – December 2014

RBA Cash Rate

Again left at 2.5%. There’s been a lot of talk this week of expectations that interest rates will now be cut further. Only last month commentators and the media were all expecting rates to increase in early 2015. I still personally think they will remain low for quite some time (at least another 12-18 months) and that another cut is probable.

This is based on practically zero interest rates in the US, Europe and Japan and now China have cut their rate by 0.4% – their first cut since 2012. As long as Australia keeps sitting at 2.5% – you can expect the Aussie dollar to remain above $0.80US which many economists believe is still overvalued.

Overall the RBA has one job – to control the flow and velocity of money (by setting the price of money) to keep unemployment low and inflation between 2-3%. National unemployment has just increased to 6.25% (expected to peak at 6.75%) and inflation is tracking at the lower end at 2.3%. To increase rates now would be silly, but then again anything’s possible.

At the end of the day you and I shouldn’t be too concerned with what interest rates do because we’ve risk mitigated by maintaining an adequate liquidity buffer and/or employed a fixed-rate strategy. I still prefer to remain on variable rates mainly because of the flexibility it gives me to manipulate the portfolio, but each one of us has differing circumstances and attitudes to risk which are discussed in depth during your finance phase with Simon.

Toowoomba (Wellcamp) Airport

The Brisbane West Wellcamp Airport officially opened a couple of weeks ago. Just today news was released that an airline training academy will be setting up in Toowoomba – details here. This is another employment industry that will feed into the local Toowoomba economy which in turn will ultimately feed into local land values.

Property that I would consider investment grade in Toowoomba is now becoming much harder to find – mainly because developers have jacked up their land prices to capture more profit (economic rent). If you are still thinking about Toowoomba then we need to jump on it now to really capitalise on the market’s movement.

Pimpama/Coomera

This area halfway between Brisbane and the Gold Coast in my view has some very serious potential. This in effect will become Queensland’s newest city with schools, medical centres, shopping precincts and golf courses all to be constructed. The Yatala Business Park is expanding nearby and housing stock will be required to shelter its workforce. Most developments are in their early stages (stage 1-3) so now is the time to get in and ride the market higher.

Cairns (Aquis Casino)

Bit of a road-bump last week as the Hong Kong developer wasn’t successful in acquiring the existing Reef Hotel Casino in Cairns. Before stumping up $8 billion to build a casino, I too would want monopoly ownership of the casino market in Cairns. Whether the project is downsized or cancelled altogether is anyone’s guess. I’ll keep you posted.

Overall in Cairns the vacancy rate is tight (1.7%) and holding steady with strong rental demand for houses, less so for apartments. Michael Matusik who is a property market commentator that I subscribe to thinks house rents will continue to lift across Cairns over the next 12 months. Experience shows that increased rents usually always translate to higher property (land) prices.

Quote

Possess yourself of the soil and you are secure – Edward Wakefield – 1831 during the colonisation of South Australia.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s