Buy Residential Investment Property

As we all know, Christmas, Easter, Summer, Spring, etc are cyclical…they come around once every year at the same time of the year. We are great believers in cycles: what goes around, comes around and history has a most unusual way of repeating itself: politics, wars, relationships etc. Even the weather can be talked about in a cyclical sense. How often have you heard someone say: “We are due…” when referring to a cyclone or a flood?  When looking to buy residential investment property, it’s worth considering these cycles.

The financial world is also cyclical. Take the Australian economy for instance. It goes through periods of booms (inflationary) and busts (recessionary). The Central Bank attempts to keep inflation low by raising interest rates. An increase in interest rates has a dampening effect on spending. Less spending causes less demand for goods. This means fewer jobs thus accelerating the decline in demand. If this lack of demand becomes too great, it will cause a recession (technically defined as two periods of negative growth). Recessions are also frowned upon by the Central Bank. Indeed, the Central Bank Charter actually places a recession as a major event to be avoided (if it can) at all costs.

So, what does the Central Bank do when a recession threatens? Decrease interest rates, of course. This will cause more money to be circulating throughout the economy thus stimulating demand, creating jobs, etc. The Central Bank has a very difficult job trying to create a balance between keeping inflation low and avoiding a recession. Sometimes they get it wrong. For some time now, we’ve been saying that the last three interest rate rises were poor decisions. We have been proven to be correct.

The demand for houses is also cyclical. When property is in high demand it is good for sellers (vendors) as they generally achieve higher prices for their properties. Other times it is good for buyers. When there are few buyers in the market place, it causes vendors to lower their expected return because of the lack of demand. Prices will level out.

The later is exactly what has been happening over the past 24 months or so. The world-wide financial crisis has made many investors ‘jittery’. There has been a lack of demand for property which has caused prices to level out. Many experts are suggesting interest rates have ‘bottomed-out’ and that they will begin to increase over the next twelve months as the Central Bank attempts to manage (what they suggest), will be a growing economy. The verdict for residential investment property . . . now is a great time to buy.

Listening to many financial ‘gurus’ the message is very clear: they are unsure what will happen to the stock market. This makes it a very unstable investment. Additionally you will not become wealthy by depositing your money with the bank – unless you wait 60 or so years. So what does that leave? Property of course!

In my over 20 years of experience in the property market, I have never witnessed conditions as good as they are right now for investing in real estate – interest rates are low (although they may increase), rents are increasing and there is a chronic shortfall in supply that is predicted to worsen. I am hearing from agents that their long-term investors are returning and looking for bargains which are there for the taking. It is my opinion that this demand will grow which will in turn cause prices to begin to rise. So, now is the time: remember, property is cyclical and in my opinion, now is the best part of the cycle to buy.

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