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Interest rates…first the sad news

The papers tell us that the RBA will keep interest rates on hold till the end of the year. Is it true? Yes, it is true, the RBA is indicating that they will not but we will see a rate rise.

 

We’ve had it good for a year and now with a healthier economy our Reserve bank in their ongoing attempt to maintain equilibrium has been on a cycle of rate rises just recently. Even though anyone reading the papers will know that there are significant issues in many global economies, particularly in Europe. However far away they seem, these problems are about to rush up and meet us.

 

Essentially, local money is being redirected to assist those economies under pressure (such as Greece) and leaving less on the shelf for us. Many of our major lenders look to overseas markets for funds to make up the difference between the funds in their savings and term deposits and the requirements they have for lending. In short, the banks have to buy money, so as funds get more expensive the profit margins get squeezed and they need to make a decision. Do they:

 

1. Restrict funding by tightening policies and criteria for lending?
2. Pay more to entice people to put money in savings by paying high term deposit interest rates?
3. Go into a public relations nightmare and put rates up outside or greater than the RBA’s rate changes? or
4. Accept the loss and the subsequent lower returns to shareholders?

HERE’S A HEADS UP: lenders have been doing #1. with extreme prejudice for the last 12 months, and in the last few months even more so. For instance, there are now very few lenders who will lend 95% and if they do it is often a P&I loan only and at a higher interest rate. One lender recently let slip to me that only 1 out of 5 of the ‘95% loan’ applications gets approved.

For those investors who have used the ‘accessing equity’ strategy ie pulling cash from one property after good growth, buying well or doing a successful renovation (or if you follow my philosophy, all three) then getting that cash is now going to be a lot harder.

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Interest rates…now the bad news

A few of the banks have recently made it known that the cost of buying funds has increased to the extent that they will have to do something… soon. You can expect that next week several lenders will be announcing interest rate rises, outside of the RBA interest rate review.

 

Essentially lenders believe they are doing it tough. Tightening policy and increasing term deposit rates has not been enough so they are now willing to cop the bad press resulting from a rate rise. But not until after the election because the subsequent political instability would – believe it or not – cause even more damage to our current economic environment. So once again, choosing a lender based only on interest rates will backfire on many an investor because banks can no longer afford to keep rates low.

 

And, if a rate rise doesn’t work then lending policy will become even more restrictive. In summary this means that there is more competition for the funds, which in itself might create difficulty in buying properties, so what will this do to property prices? Cash (or equity) is still king, being in a position to buy quickly may get you a bargain.

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Possible Election fallout

The promises and policies of this election seem to be peripheral. However some policies could make you reconsider your investment decisions. For instance the large export of the youth of Adelaide is balanced by the large overseas immigration to that capital. If immigration policy does reduce the current figure of 300,000 down to 170,000 then as an investor you would want to re-evaluate the supply and demand dynamic that drives property prices.

 

This is just one of several considerations, infrastructure being another. According to Bernard Salt of KPMG, census data between 2001 and 2006 indicates that the greatest population shifts were from sea changers, however there were a few exceptions – one being Mt Barker in Adelaide where tree changers were able to commute to work due to a large investment in upgrading roads to the CBD. I am watching infrastructure promises this election and keen to see the potential impact.

 

Salt has also discovered that of the area with the top 10 population changes since 2007, Blacktown is the only one from NSW. While rushing to buy in Blacktown is not on my to-do list, the numbers don’t lie and it seems affordability will increasingly be a major contributor to the way people buy.

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The top 4 reasons people don’t invest in property

These reasons come so often from would-be investors that not only do they make my top 4, but I have developed a free seminar specifically to address them. In fact when Australian Property Investor magazine asked me to write a blog for them recently these issues were a ‘must address’.

So what are the top 4 reasons not to invest in property?

You can also read the full API blog entry here

1. My partner isn’t supportive and won’t discuss property investing.
2. We/I tried it once and it didn’t work out.
3. I keep trying to pick the market but every time I go to act I seem to have missed the boat.
4. I can’t afford it.

If any of these reasons resonate with you or you’d just like to know more about how to overcome them and how, when, where and why to invest in property – without the jargon and the sleazy sales pitch – then why not come along to a (no obligation) free 2 hour seminar in Sydney on Tuesday 31^st August or in Melbourne on Tuesday 14^th September.

Click here to register.

If your partner is a reluctant investor then this might be a good non-threatening forum to understand the reasons behind their hesitation.

 

Medine Simmons, fellow investor and property enthusiast will also be there and she’ll show us her annually updated RP Data heat maps that display ‘10 year capital growth’ figures for Sydney and Melbourne. Once you get behind the rhetoric and media hype surrounding the property market and look just at the data its amazing how clear areas of investment potential can be seen.

 

Alternatively, you can sign up for a free 28 day ‘Property Investment 101’ e-course that addresses each of the above fears over the first 4 sessions…conveniently emailed direct to your inbox.

The next e-course is starting soon, keep an eye out for dates at

www.stepbysteppropertysuccess.com.au

www.twitter.com/sbsps

www.facebook.com/propertyinvestingsuccess

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How to research your options and analyse the data

Last month Medine Simmons and I ran workshops in Brisbane and Canberra, it was great to see that our participants recognised that the low cost of our 2 day workshop compared to others meant they could travel from as far away as Perth and Adelaide to attend.

 

In Brisbane we canvassed participants and selected a suburb to concentrate on for the weekend so that all our analysis was in relation to this suburb. Viewing Medine’s RP Data heat map we were amazed at the 16% plus growth experienced within 25km of the city, particularly in and around Ipswich. 

 

The SBSPS workshop gives participants not only the tools to be able to use immediately when they get home, but we do several live examples to show participants exactly what to do and how to analyse their research effectively. To this end, we took the top 20 websites that I use for research (which I have been continuously refining over the last 10 years) and we subjected the suburb to rigorous analysis, including demographic, infrastructure, median analysis on yields, renovation potential and we found some interesting and exciting opportunities. Who would have thought a suburb with a median price below $260,000, with growth potential and rental yield over 5% was available this close to the city?

 

However, one thing that concerned me about the Brisbane area was the Residex prediction that house prices will grow just 2% pa in the next 8 years. In fact I was so concerned I visited and spoke to John Edwards from Residex about this and he had made some interesting points. Essentially, unlike other capital cities, in Brisbane there is ample land available for release (so no supply issues to drive up price), the infrastructure is not that great for people commuting to work hubs and the overall population demand is reducing. 

 

So as you can see, just relying on the practice of buying in a capital city is not going to do much for your investment portfolio if you invest in Brisbane. Having said that, there are however areas within Brisbane that have great opportunity for growth and it is your tenacity and research that will mean the difference between holding an underperforming portfolio or one that allows you to ‘check-out’ of conventional working life in the timeframe you desire.

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A QUICK AND FUNNY ASIDE: In Brisbane last week, I was having dinner with a few like-minded professionals and their partners. I commented to one lady that I was shocked over John Edwards’ statement that ‘Brisbane house prices would only grow by 2% pa in the next 8 years’. Imagine my surprise when she too showed her shock and dismay – to be honest, a whole lot more ‘shock and dismay’ than this fact really deserved – shocking yes, but she was absolutely gob smacked. It was not until she said “I thought he just communicated with the dead for loved ones. I didn’t know he did market predictions”. After I picked myself off the floor laughing, I explained that it appeared we had our John Edwards mixed up. Of course, I meant John Edwards of Residex, but she was thinking John Edwards the psychic, of “Crossing Over” fame. Too funny!

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The new tool in my arsenal for assessing the renovation potential of a property is extraordinary. Its something I didn’t even realise I had, but now that I understand its potential I just have to share my excitement.

However I am only sharing it with subscribers to my newsletter and people who attend my courses. So if you want to know how to supercharge your investment decision making you should:

Sign up for the Investors Choice newsletter,
Register to attend the next Step By Step Property Success course, or
Come along to a free 2 hour info session Overcoming the Fears of Property Investing

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Announcing the final two
'Step By Step Property Success' weekend workshops for 2010

Sydney: 18-19 September, Rydges World Square

Melbourne: 2-3 October, [venue TBA]

 

SPECIAL OFFER: take $600 off the price and ask about our discounts for additional tickets.

 

Register on the website for a FREE 2hr info session:

"Overcoming the Fears of Property Investing" plus you get to take a look at Medine Simmons' amazing RP Data 10yr growth heat map

 

Tuesday 31st August, 6.30-8.30pm

Kirribilli Club | 11 Harbourview Crescent | Lavender Bay

 Tuesday 14th September, 6.30-8.30pm,

Melbourne [venue TBA]

Register now at

http://www.stepbysteppropertysuccess.com.au

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A closing comment
I know this newsletter gives you a huge amount to absorb in one sitting but trust me its worth it.

I look forward welcoming you and your friends to the next Step By Step Property Success workshop but in the interim, if there is any way the team at Investors Choice Mortgages can assist you, regardless of how big or small your query, please let me know.

Until next time, I wish you prosperous investing and happy house hunting.

Jane (follow me on Twitter)

PS: at Investors Choice we believe in sharing our systems, information and resources. Our website is continually updated to reflect any new information we think you might find of benefit. Check out the website at www.investorschoice.com.au

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Disclaimer: You should always speak to a financial planner or accountant about your particular circumstances, the hints mentioned here are for general discussion only and do not relate to your particular circumstances