Volatility in stock markets and low-interest rates combine to create positive prospects for investors, explains Richard Sheppard.
The share market’s wild ride on the back of fears over China’s economy has generated inevitable headlines questioning the Australian investment environment. What does it really mean, however, for property investors?
In short, the news is actually positive, despite share price flip-flops and concerns over a sluggish economy in Australia. While no one wants to see a poorly performing economy, the key advantage it delivers for savvy investors is low-interest rates. That clearly helps affordability for property buyers and, with interest rates at their lowest point in the past 60 years, they have been able to expand their portfolio through selective purchases in strong target markets. Safe haven for Chinese The other point of interest to come out of the rout on the Shanghai Stock Exchange is its potential impact on Australia’s property market. There had already been an overall trend towards rising Chinese investment in Australian real estate in recent years, and there is anecdotal evidence following the events of the past month that some wealthy Chinese investors are seeking a safe haven from the stock markets. The American, British and Australian property markets are likely to be among the resultant winners.
So, in this context, the recent wipe-outs on the Australian and Shanghai share markets should not overly concern property buyers down under. Remember, though, that this is not a debate about shares versus property. Both have their virtues. Shares offer the advantage of higher liquidity and smaller investment outlays, while a strategic property portfolio can deliver millions of dollars for investors over the long-term.
Adding to the share price jitters for some investors is the Australian Prudential Regulation Authority’s move to change lending conditions in an effort to cool down the property market. The major banks have certainly been passing on interest rate hikes to property investors, while many banks have also started lifting their minimum deposit amounts for purchases.
Nevertheless, given the low-interest rate environment, the opportunity is ripe for investors to use their equity in an existing property to grow their portfolio and long-term wealth. It is worth noting that APRA has been especially concerned about the overheated Sydney property market – and with good reason. Sydney is not the place in which to invest at the moment. Brisbane, on the other hand, is the only Australian capital city with a strong growth forecast which also has very strong rental demand and rental returns, so much so that one investment property in Sydney costs the same to hold as almost 3 properties in Brisbane after rent and tax benefits! Rarely has one capital looked so much more promising than all others for short to medium term growth, but still with better long term prospects.
This article was originally written for the September 2015 edition of Peninsula Living Magazine.