Why I think property is an astute investment in 2017
By David Naylor, Co-founder of Chan & Naylor - Property & Business Tax Accountants
1. Interest Rates
The word is that US interest rates will increase and Australian banks have already started to raise their rates independent of the RBA’s moves. However, Australia’s cash rate sat at a historic low of 1.5% as of January 31. Even if rates did increase, along with the predicted US rates over the coming 12 months, by the end of 2017 they will still be comparatively low.
2. Demand is still high
Multiple publicly listed property developers noted that while the rate of price growth has slowed, pent-up demand remains strong.
But it’s important to note with a marketplace as wide and diverse as Australia that conditions vary amongst the capital cities and regional areas.
Banks have tightened lending on property development making it more difficult for smaller developers to access funds for projects. This means there will be less development and inevitably less housing coming onto the market over the coming years.
3. 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, which is good news for investors who have scope to negotiate rates below advertised levels. There has never been more choice of products, interest rates and banks to select from that are willing to lend against property.
4. Long term investment
Imposts such as stamp duty make property a long-term as opposed to a short-term opportunity. We have seen the statistics that show over a 10-year period, property has the potential to double in value, equating to a capital growth of 7%, plus a net of 3% rental return - giving 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.
5. Negative gearing (for the short term at least)
The Turnbull Government has ruled out changes to Negative Gearing legislation which means - at least for the next couple of years - property investors will benefit from the tax savings. The tax benefits received assist the investor with the funding of the shortfall to hold the property longer term.
This is general information only. Always seek advice from your financial advisor to assess whether property is an investment you should consider, taking into account your individual situation.
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