Why property is looking good

Market Insights
7 years ago
1 minutes
  • Money in the bank on 12-month term deposit earns about 1.8%
  • Forecast inflation is about 1.5%
  • The RBA's official cash rate is 1.5%
  • Australia's 10 yr Gov Bond rate dropped over night to 1.84% (lowest ever)
In a recent speech, the Chair of Australia's Future Fund and former Treasurer Peter Costello, said earning our target return of 5% is very difficult in this market and he has asked the Government to lower the target, or allow them to invest in riskier assets. Most economic commentators agree we will be in a low growth, and low return environment for many years.
Interestingly you can buy residential real estate returning 5% gross (about 4% after rates & OC fees). And that is before capital return which (assuming you buy the right property) will boost the total return over the longer term to say 7% - 8% net. In the investment world, real estate is usually the boring and stable asset class that just plods along at the back.
Depending on your own situation, you can borrow money for an investment loan at 4.5%. If you are borrowing up to 80% you can quickly see the rent will pretty much cover the interest and the return on your equity component is even better. So the investment pays for itself, leaving you to enjoy capital growth for free.
And if you are worried about the apartment market, best to read this research by Charter Keck Cramer,which states it is “too simplistic to equate the unprecedented level of supply of apartments to be representative of an oversupply, without considering the corresponding demand side indicators".
Please seek specific personal advice from your real estate agent, accountant, and financial planner when investing.
This article was written by our friend Andrew Wood, from Wood Properties.