Funding

A perfect storm is brewing in property

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The historic low interest rate climate that we are now experiencing is a unique moment in time as RBA interest rates haven’t swilled around at 2.25% since the 1950s. Our research team has noticed that this is already having ramifications across both commercial and residential sectors.

Add to this the low currency exchange and low inflation and we have a perfect storm which is generating unique and unprecedented pressure on the Australian property market, creating a benign micro-climate for owner-occupiers and investors.

The Australian dollar is now sitting just under 0.80 to the mighty greenback, which effectively translates as a 20% discount off property prices. This weak Australian dollar means that greater volumes of investors continue to underpin the market.

It has also encouraged the global community to turned their focus to Australia as we are now very attractive compared to other international destinations and are placed in the top four countries as preferred investor locations.

Investors are returning with a vengeance, as these low interest rates will reinvigorate both the commercial and residential market.

There is a lot of pent up demand, it’s just that the expectation that the exchange rate is going to keep falling and interest rates may go lower. All it takes is a slight change in sentiment and buyers will be moving in – in even greater numbers to take advantage of relatively cheaper prices and better investment returns.

Damon Krongold, director of Beller Project Marketing, noted that that the RBA interest rates are even lower than immediately post GFC.

He believes the combined effect of low interest rates and low inflation have made a great environment for off the plan purchasers to benefit. Whether they be owner occupiers or investors. For owner occupiers, with the RBA interest rate of 2.25% which contributes to an incredibly low borrowing rate of 4.75% and inflation at an incredibly low 1.7%, makes the case stronger than ever for first home buyers to redeploy their rent into a mortgage.

These unique conditions are ripe for savvy owner occupiers and investors to be ahead of the curve.

We are now firmly part of the global economy and just need to jump into the market as money in the bank is just not working any more, the interest climate is so low. Australian property is a very attractive proposition as we can still achieve good yields.

The numbers also add up for commercial property investment.

Buying a property in your local shopping neighbourhood can provide both financial and emotional security. As consumers we need to feel comfortable with the business paying our rent and financially the numbers today are cash flow positive for the first time in many years.

Interest rates for commercial property and residential property are almost identical, with the variance only 0.35%pa So, when doing the numbers, don’t forget that commercial property is more affordable than you think.

The big push will come from private superfunds and individuals with cash in the bank and who are frustrated with their investment returns. Commercial property investment will then be seen as a logical choice.

Andrew Fawell is director of Beller Property Group.  This story originally appeared on Property Observer.

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