In the ever-evolving landscape of the Australian property market, the recent decision by the Reserve Bank to adjust interest rates has sent ripples through the industry, leaving landlords and property experts to navigate a ‘frantic’ environment. The impact of interest rates on the property market is a hotly debated topic, and recent developments have brought it to the forefront of discussions, many of whom are property owners, investors, or retirees relying on real estate for their nest egg.
The Reserve Bank’s announcement of a rate cut from 4.35 to 4.10 per cent has been met with a mix of relief and caution. For mortgage holders, this reduction offers a much-needed respite, potentially easing the financial burden of home loans. However, property experts like Jack Henderson, a 28-year-old owner of 15 properties and a buyer’s agency, suggest that the true impact of rate changes is often overestimated by the average Australian.
Henderson, who has accrued over $20 million in debt while building his property empire, holds a contrarian view on mortgage repayment, believing it is ‘stupid to pay off your mortgage’. He anticipates a temporary surge in market activity, a ‘short-term frantic market’, as buyers and sellers react to the lower interest rates. Yet, he remains unfazed by the long-term implications, asserting that life for most people will continue as usual.
The sentiment is echoed by property expert Sam Gordon, who owns over 100 properties and carries $40 million in debt. Gordon, who also chooses to rent his residence, emphasises that while rate cuts can stimulate the market, they should not be the sole focus for investors. He advises looking at the bigger picture, considering factors like market growth in cities like Perth and Brisbane, which have seen significant increases in property values regardless of interest rate fluctuations.
Both Henderson and Gordon stress the importance of not living and dying by interest rates. They argue that the true measure of success in property investment is the long-term appreciation of assets, rather than the immediate cash flow impact of rate changes. Henderson candidly shares that his monthly expenses on properties have increased, but he remains more concerned with the overall value growth of his portfolio.
For those in the property-buying business, like Henderson, a rate decrease is a welcome development, as it can lead to more competitive banking and a more positive market sentiment, potentially boosting business. However, the experts caution against becoming too fixated on rate cuts, as they are just one aspect of a multifaceted property market.
Gordon plans to sell some of his properties this year and is keeping a close eye on interest rate trends. He acknowledges that rates do matter, especially if a property isn’t appreciating in value and is costing the owner significantly to maintain. He challenges the traditional Australian belief that property should be held indefinitely, suggesting that there are times when selling is the smarter financial move.
The advice from these property moguls to Australians, who may be considering their investment strategies, is to buy when affordable and not to obsess over interest rates. Instead, they recommend focusing on the long-term potential of property investments and the broader economic indicators that drive market growth.
As the property market adapts to the ongoing shifts in interest rates, it’s clear that the full impact may take time to unfold. While some see short-term opportunities, others remain focused on long-term asset growth.
What’s your take on how interest rate changes are influencing the property market? Have you noticed any significant shifts in your area? Are you considering buying, selling, or holding onto your property as rates continue to evolve? Join the conversation in the comments below and share your thoughts with us! We’re eager to hear how these changes are shaping your property decisions.
Also read: The wait is over: RBA cuts rates by 0.25%
It is with people like Jack in mind that negative gearing should be banned and that banks and other lending institutions should be limited to lending up to 70% of the value of the property. The 50% CGT discount should be abolished and replaced with CPI increases on the cost base.
This will result in decreases in property prices which will mean more affordable housing and lower rents and a return to the days of 5% -6% gross returns on residential residential property market.
It is time to get the speculators out of the residential property market any return it to what it was, i.e an income investment.