SSS – August 2015

RBA Cash Rate
As expected the RBA held rates at 2% for August. We’re still anticipating a further cut later in the year but this most likely will not flow on to investment lending. Rather it’ll be aimed at more owner-occupied borrowing and personal consumption loans for things like cars and technology.

The above is very important to note as owner-occupiers buy based on emotion and lifestyle; investors like us buy based on economic fundamentals and numbers. Emotion and desire contribute significantly to higher property prices, although the mainstream will have you believe it’s all because of ‘greedy’ investors. The more credit that is created and lent to owner-occupiers to buy into the ‘great Australian dream,’ the higher we can expect the land price to increase.

As alluded to in a previous SSS, we’ve been here before in the mid 90’s when interest rates for property investors were higher than owner-occupiers. This is the cycle at play, trouble is most of us were either too young or just not aware of what was happening and why.

For those concerned about a property bubble, Core Logic released data showing that total value of Australia’s real-estate broke through $6 trillion in June 2015. What’s really interesting though is that the value of total debt tied against this $6 trillion is approximately $1.49 trillion. This is an LVR of only 25% meaning total values (excluding vacant land) are worth four times more than the debt held against it! This is nowhere near bubble territory so keep this in mind when you next hear a bad news story about property bubbles.

Core Logic article

Market Update
Congratulations to those who have either recently or are close to being completed on their investment properties! Infrastructure in preparation for the 2018 Commonwealth Games is well under way which will greatly improve amenity and desirability of the Pimpama/Coomera regions.

The second Toowoomba Range Crossing project is expected to pump around $500,000 per day into the local economy. We can expect land values to take up most of these gains going forward.

Whilst the South Australian economy is pretty flat at the moment for our first-home buyers, land-locked infill developments close to amenity and infrastructure will prove to be worthy investments in the long term.

Investment Strategy
For those not aware Defencewealth advocates a TWO-50-TEN™ strategy. This is based on acquiring a $2 million portfolio, consolidating down to a 50% LVR and achieving sustainment within a ten-fifteen year period. The properties acquired must be assessed against cash flow, capital growth and risk noting we target new property to better maximise the effects of depreciation and stamp-duty savings.

It can be hard to project manage all the services required to see through successful investing, that’s why Defencewealth has an established team in place to look after our ADF client-members. Teamwork, integrity and trust run through everything we do and it’s important you only work with people who are not only investors themselves but have achieved success in the field.

Global Economy
In summary:
• Greece is getting bailed out again with more loans and will remain within the Eurozone;
• The Irish, Spanish and UK economies are now significantly improving;
• The US are talking about raising interest rates by year’s end. Remember this only happens when an economy is improving;
• China not so good, may impact Australia’s economy particularly going into 2019-2020 but wait and see;
• Australia is joining the Chinese-led Asian Infrastructure Investment Bank (AIIB) bringing us further into the Asian Century.

We love your referrals! Please continue to let your friends, family and colleagues know about the Defencewealth team and service.

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Paul Samuelson

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