Category: Short, Sharp & Sweet Insights

RBA Cash Rate – Left on hold again at 2.5% for the month of August. As I’ve said previously I expect low rates to remain for at least the next 12-18 months. We’ve just seen Westpac, CBA and NAB move their 5-year fixed rates to below 5%! The big banks pay large sums of money to employ actuaries whose sole job is to research and predict the future cost of capital and hence maximise banking profits. Whenever you see fixed rates below variable – this is a sign that banks think rates will be going even lower.

The RBA (the King Bank) even had this to say last Tuesday:

  ‘Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

‘In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.’

We’ve just seen national unemployment increase to 6.4% and the Aussie dollar still sitting high at around $0.93US – If that combined with the RBA’s last statement regarding inflation doesn’t mean interest rates are staying low for at least the next 18 months, then I don’t know what does.

Tax Time – I use the EOFY to also review my insurances (building and landlord), interest rates and PAYG Tax Variation. I’ve managed to source further interest rate discounts across all my current lending (including the NAB DHOAS loan) ranging from 0.06% to 0.4% bringing total discounts off the standard variable rate of between 0.85%-1.05%. This has freed up some decent cash flow which can then be reinvested. All it takes is a phone call to your lender – if you don’t ask, you don’t get. It’s also a good time to review your credit file which can be sourced for free from here.

Catherine Norris from CJB Property Group is currently working on an investors’ pack that will assist clients in your investment record-keeping requirements. I’ll keep you posted on its progress.

Toowoomba Market – Terry Ryder who I subscribe to for research purposes recently advocated again for the Toowoomba region. Attached is a spread out of The Chronicle in May detailing the latest on infrastructure spend.

Cairns Market – Although economic diversity lacks in Cairns and its primary industry is tourism, details of the proposed Aquis Casino development caught my attention this week. For want of a better phrase – this is fricking massive! It’s estimated to be an $8+ billion project over 10 years; 7,500 hotel rooms and a 20,000 strong workforce. An older colleague likens it to what was happening on the Gold Coast in the late 80’s early 90’s where massive property gains were made by those who got in early. The casino project is still undergoing EIS (Environmental Impact Study) and is far from being a sure thing – however if it goes ahead, the flow on effects to property (especially during the construction phase) will be significant. Be rest assured we’ll be watching this closely and will keep you posted. More details here.

Quote – ‘Land prices need to be high enough so that workers who saved to buy land of their own remained in the workforce long enough to avoid a labour shortage.’ Edward Wakefield -1829 in support of the South Australian Colonisation Act.

RBA Cash Rate – Was left unchanged again at the July Board meeting. Those in the industry believe this will be the case for at least the next twelve months. The two main reasons are the high Aussie dollar ($0.94 US Cents) and zero-bound (0.1% – 0.25%) interest rates in the US, Europe and Japan. Our 2.5% cash-rate is attractive to foreign capital combined with Australia’s reputation as a safe, stable and prosperous country. This in effect is what is keeping our dollar so high.

There may be another rate cut later in the year depending on what inflation is doing and how much more of a beating the manufacturing sector can take. I personally think we will have low rates for quite some time and that another cut is not off the mark. The fact the banks still have fixed rates below variable rates demonstrates belief there will be further movement downwards. For this reason I am keeping my portfolio leveraged at variable rates and interest-only whilst maximising use of my DHOAS offset account.

Toowoomba Economy – For those that haven’t seen it, the Courier Mail ran an article on the town’s infrastructure boom currently underway. Toowoomba is Australia’s second-largest inland city (Canberra’s the largest) with on average 50% of goods shipped through the Brisbane Port originating from the Toowoomba and western region. Massive growth in infrastructure (both public and private) is crucial for long-term capital growth. Congratulations to those that have recently acquired investment-grade lots up there! You can read the article here.

Asset Protection – Had a good question last week from a member who wanted to know whether buying in their own name was safe. In my view – yes it is. Purchasing in a Trust (whether it be a Family or Unit Trust) is complex and will cost on average between $2000-$6000 just to set up. Whilst ownership in a Trust means the assets are protected should anyone want to “have a go” at you, you have to weigh it up with what the likelihood is that someone would want to have a go. Most banks and lenders will also charge more for lending to a Trust as it is more complicated than just lending in your own name as there’s more hoops to jump through. You also can’t claim negative gearing in a Family Trust. For those contemplating purchasing in a Self Managed Super Fund (SMSF) – that’s a whole different kettle of fish although no one is in that boat yet.

Provided that you are not negligent in your duties as a landlord (professional property management) and carry the appropriate insurances (building and landlords) then you have adequately assessed and mitigated the risk. For the aircrew amongst us – process is no different to an RMP. Don’t forget you’ll also most likely be leveraged at around the 90% mark at this early stage of your investing career so if someone did mount a claim, there’d be bugger all to take anyway.

Once you start building some serious equity in your portfolio, there are ways and means to protect your wealth and also keep it in the bloodline for multiple generations after you pass on. I’ll probably talk more about that in a future SSS.