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Consolidate, Speculate and Accumulate
August has brought yet another cut in interest rates, taking the official cash rate to a record low of 2.5% and consumer home loan rates to GFC levels. Although there’s still some media speculation over further cuts, I believe we’re now at the bottom of the rate cutting cycle and unlikely to see rates fall much further.
Regardless whether we’ve already reached the bottom or are just approaching it, it’s time for property investors to get into position for the next stage of the cycle. Although it may not happen for some time, rates will inevitably rise again at some point and hence the current focus for investors needs to be on consolidation.
A low interest rate environment presents the perfect opportunity to pay down debt quickly and as always, I encourage people to make sure they are spending less than they earn every month. Now is the time to fix part of your property loan while increasing repayments on the variable portion, building up a buffer in a redraw facility or offset account. In this way, you’ll have insulation against interest rate rises when they come and also have funds to act should good buying opportunities arise in the meantime.
In terms of the local property market, properties in every price segment are selling as quickly as we can list them. Buyer demand far outstrips the available supply and the long-awaited announcement of a Federal election date has failed to dampen buyer enthusiasm.
For those property owners who’ve been holding off selling, the current environment offers excellent opportunities to transact. There’s little advantage to be gained by waiting any longer – regardless of who wins the election, Australia will face significant economic challenges and there are unlikely to be meaningful property price rises ahead until at least 2016-2018.
Whether you’re a buyer or seller, my advice in the current environment is the same for each – pay down debt, consolidate your position, and speculate to accumulate. In that order.
All the best,