A New Year with New Aspirations and New Goals; Here Are 5 Reasons Why I Think Property is Still the Stand Out Investment for 2017
- Interest Rates still at an all-time low
The word is that US interest rates will increase over the coming 12 months and Australian banks have already started to raise their rates under the guise that costs are increasing and returns diminishing to shareholders. Australian rates sit at historic lows of 1.5 %. Even if rates do increase along with the predicted US rates over the coming 12 months; by the end of the year they will still be low. If rates do increase, you will see an initial emotional reaction from the market, but when the dust settles investors and mortgage holders will realise that rates remain at very sustainable levels.
- Demand is still high, no oversupply of property in key areas
Sentiment in the market is still strong with the outlook from the developers at Stockland and Mirvac. They have been advising that while the rate of price growth will slow, pent-up demand remains strong.
Mirvac’s outlook is that in the residential sector, conditions remain mixed nationally. In Sydney and Melbourne, indicators such as auction clearance rates point to solid demand supported by a competitive lending environment and increasing urban population growth. They say price growth remains positive in Sydney and Melbourne, relatively steady in Brisbane and weak to steady in Perth. According to Australia’s richest property investor and developer Harry Triguboff, there is still a shortage of supply particularly in Sydney so demand is still outstripping supply. Banks have cracked down on property development finance which makes it more difficult for smaller developers to access funds for a project. This means that there will be less development and inevitably less housing coming onto the market over the coming years.
- Bank funds readily available
Banks still view residential property as a solid long term investment, why else would they be prepared to lend you 80% of the purchase price? The mortgage investment sector is very competitive with the banks flushed with funds this can only be good news for investors and rates below the advertised interest rate should be negotiated. There has never been more choice of products, interest rates and numerous banks to select from that are willing to lend against property.
- Long term investment
We all know that you invest in property for the long term. Property is not a short-term investment due to the cost of entering the market stamp duty etc. We have seen the statistics that show that over a 10-year period, property generally will double in value which equates to a capital return of 7% per annum in addition to a net of 3% rental return per annum that equates to a solid 10% return over that period. You just need to be mindful that property works in cycles and although you may see extraordinary capital gain over a few years there will also be periods of little, zero or even negative growth. Rents are more consistent, and over the longer term a combined 10% return per annum is what you could expect for the right property in the right area.
- Negative Gearing for the short term at least
The federal Government has ruled out any changes to Negative Gearing legislation in the short term which means at least for the next couple of years property investors will benefit from the tax savings. The most important aspect of holding investments with borrowings is being able to fund any shortfall between the rent received and the cost of holding the property including the mortgage payments. The tax benefits received, assist the investor with the funding of the shortfall to hold the property longer term.
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Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.