Sil­ver lin­ing for in­vestors

The Advertiser - Real Estate - - Front Page -

FLAT and fall­ing prop­erty prices have been a pain in the neck for South Aus­tralian prop­erty in­vestors for the past year or more. Added to that, re­cent re­search says rental in­comes also have been flat in the past 12 months. Land­lords must be won­der­ing what comes next – a gi­ant auc­tion­eer’s gavel so they can whack them­selves in the face ev­ery day or so to re­mind them­selves of their mis­for­tune, per­haps?

How­ever, even with dis­ap­point­ing price and in­come growth, most in­vestors are get­ting a bet­ter fi­nan­cial deal than they were a year ago, thanks to the Re­serve Bank of Australia. Only a mi­nor­ity of mort­gages in Australia are on fixed in­ter­est rates, which means most bor­row­ers are rid­ing the rates roller-coaster.

We have had two of­fi­cial in­ter­est rate cuts since Novem­ber and many econ­o­mists ex­pect the RBA to cut the of­fi­cial rate again next week, though it’s de­bat­able about how much they will cut it by and how much, if any, the banks will pass on to bor­row­ers.

What­ever hap­pens, a prop­erty in­vestor with a $400,000 loan is $2000 a year bet­ter off to­day than they were at the start of Novem­ber. That’s equal to a rental rise of al­most $40 a week.

If the dodgy fi­nan­cial sit­u­a­tion in Europe gets worse and the world sinks into an­other re­ces­sion, we can ex­pect more rate cuts that will ben­e­fit al­most all bor­row­ers. In fact, it’s of­ten said that a re­ces­sion is good news for any­one who holds on to their job be­cause ev­ery­thing else be­comes cheaper.

Of course, at some time in the fu­ture in­ter­est rates will rise again but that usu­ally goes hand in hand with an im­prov­ing econ­omy and hope­fully im­prov­ing rents and house prices. In the cur­rent sit­u­a­tion, where rents are not mov­ing and many prop­er­ties not sell­ing, the best strat­egy might be to sit tight with your in­vest­ments.

The lat­est rental price re­port by Aus­tralian Prop­erty Mon­i­tors found the me­dian ask­ing rent for houses in Ade­laide was $340 a week in De­cem­ber, ex­actly the same as it was 12 months ear­lier.

Rents for Ade­laide units fared a bit bet­ter, up 3.7 per cent over the year to $280 a week. Both fig­ures are among the weak­est growth rates for all states.

Ade­laide’s gross rental yield for a house is 4.46 per cent and for a unit it is 4.73 per cent, the re­port says.

It is not as good as bank in­ter­est but re­mem­ber that bank in­ter­est does not come with tax de­duc­tions for things such as depreciation and build­ing costs.

Fac­tor in those and at these lev­els many i nvestors will be pos­i­tively geared – which is the ul­ti­mate aim of a suc­cess­ful prop­erty in­vestor.

An in­vest­ment that doesn’t suck money from your pocket is an in­vest­ment worth hold­ing on to through the bad times, be­cause when things im­prove in the fu­ture, it will be party time.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.