07/11/2023
RBA WHAT WAY ON CUP DAY ?
Like so many we are perplexed by the Reserves Banks current tightening cycle, and before that its reckless crusade to cut interest rates so the country could theoretically achieve “full employment” whilst unleashing a major upside move in the property market.
Further to our mind government payments during the pandemic to “save the economy” and “keep people in jobs” probably amounted to the largest single fiscal intervention on a per capita basis from any government in history.
In any case extremely low interest rates and this historical fiscal stimulus implemented by the government was causing the housing market to boom all over the country from Byron Bay to Margret River and everywhere in between.
The mother of all “wealth effects” was with us. The wealth effect is a simple idea that explains that people will spend more if they believe the assets they own have appreciated in value. Aussies love banking theoretical increase in their property value to justify meals out or that new weekender, car or caravan (depending on what floats your boat, maybe a boat?).
Had we finally arrived at the money tree??? Unfortunately, we hadn’t and like day follows night inflation follows reckless government spending and record low interest rates.
Where does this leave us, who is paying for these errors in monetary and fiscal policy? The answer is simple, people with DEBT and PAYG earners. It's time all levels of government looked at structural change to wasteful fiscal initiatives to do some of the heavy lifting. It concerns us when we have a new Reserve Bank Governor still focused on “external shocks” like the awful situation unfolding in the middle east to give her a mandate to bear down a little more pain on your average Australian by ratcheting up interest rates even further.
Here is a list of four common sense considerations to allow to think more deeply and strategically about your investment in property in the current environment:
1. Consider the short term rentability of your property, platforms such as Airbnb allow you to make additional money from your property investment. Make sure short-term stays are allowable use for your property (check council zoning).
2. Can you create another space / secondary dwelling to offer to the long-term rental market to ease the rental crises and add a long-term rental income to your cashflow.
3. In major capital cities consider a staged entry to your accommodation. For example, accumulating two units next to each other over time may meet with your family’s requirement and give you more financial optionality in the future.
4. Buy and hold, buy a property that you plan to hold for the ultra-long term this will allow you to save money on taxation and transaction costs.
Let’s see what way the RBA goes today and good luck in the Cup!!!
This is not financial advice. Please consult your financial advisor before making any investment decisions.
Ivy Broking
Ivy Broking provides mortgage and finance broking services.
