The High Price of Being Popular

The High Price of Being Popular

I hope you have had a nice Easter break and didn’t eat too much chocolate. By the way I discovered that $200m was spent on chocolate by Australian’s this Easter, which makes for a nice but less tasty segue into what Australian’s are now paying for property particularly in the Sydney and Melbourne markets.

Unfortunately, Sydney, Melbourne, and to a less extent Brisbane are paying the price of being popular lifestyle destinations, from a growing middle class Asian market. This is not only directed from the Chinese, but also Singaporean, Malaysian, Indian and Korean investors, who are looking for safe havens, attracted by affordable education and health systems, and within similar time zones. With many currencies some 30% stronger then the Australian Dollar, this makes investing in Australia much cheaper.

Will this stop? Possibly not from markets that have no income or international funds transfer restrictions, however we may see some slowdown from Chinese investors, as the government is now limiting the amount of funds that can be transferred out of China. There are an estimated 250 million middle class earners on Australia’s doorstep who have a yearning to come here and enjoy fresh air, water and natural beauty that Australia offers, which means more people investing. In my last visit to China I spoke to many investors, and they love Australia because we have the resources and they have the market, there have been no wars here, and governments at all levels are very stable, despite having 5 Prime Ministers in as many years!

So what does this mean for interest rates and the property market? I think over the next 12 months we will see much of the same, regulators trying to reduce the heat out of the property market, and may I add unsuccessfully with a continued lack of supply, particularly in Sydney and Melbourne, leading to potentially further property price increases. Therefore it is possible more restrictions will apply for interest only investment loans by having lenders adopt further rate increases and policy restrictions. However owner occupied home loans and principal and interest (P&I) repayment commercial loans will continue to remain competitive with lenders fighting for a greater share in these target markets. After all the banks still need to make money!

If you have an investment loan and have seen your interest rates increase over he past 2 – 3 months, I would either consider converting to Principal and Interest, or lock in a portion of the loan to take advantage of lower rates. Interest rates remain historically low and we would be happy to undertake a free loan health check to ensure you are getting a fair deal.

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