Rise and fall, boom or bust

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2029
Calculating your interest rates, A gray model house on a calculator with word Rates over a distressed wood background

While an interest rate high is expected at the end of 2016, it will not be rapid. But smart investors ought to look into the suburbs which have better growth patterns historically

Will the interest rates rise? Actually, it is not a matter of will the interest rates rise, it is a question of when. We have seen a low interest rate environment for some time and it will continue for a year from now. Many experts still argue whether RBA will increase the rates or decrease the rates. Even if the rates go up, it will not be more than .50 points.

The dollar is trading to low 70s and our economist think, employment rate has peaked. House prices in Sydney and Melbourne are over-heated, which is of great concern to RBA. But, the RBA decision is not based on one single fact. RBA will have a wait and see approach. You can expect a rate rise at the end of 2016, and when they do rise, it will not be rapid.

Will there be a interest rate cut?

Interest rates aren’t bottomed out. There is rate cut on the cards in the next few months. Our readers will one day see a zero interest rate scenario. A number of developed countries have zero interest rates while some European countries even have negative interest rates.

With last month’s share market crash, oil is at an all-time low, copper is at a six-year low, most of the commodities are still at very low prices. The Australian share market hasn’t reached its heights of 2007. China has devalued their currency (Yuan). The outlook is looking more of a rate cut than a rate increase.

Yes, rates will decrease in the short term, but in the long term brace for higher interest rates.

Are low interest rates the new normal?

Yes, interest rates of 18%, you will never see in your life-time, unless Australia becomes bankrupt. Even Asian countries which had interest rate in double digits, until a few years, are now back to the singles.

If you are applying for a loan, banks have already put aside a 2-3 % of buffer in serviceability. Even if there is a rapid rise in interest rates, we would be seeing 2-3 percentage points in the next 5 to 10 years.

Are the property prices at their peak?

The real estate market was never cheap at any point of time. It will always be expensive and continues to be expensive. Property is expensive in the two capital cities of Melbourne and Sydney. As a beginner, you still have lot of choices left to buy properties for very affordable prices. Yes, there are some pockets in Melbourne where prices are very high. It always has been like that and will have a good growth into the future.

You can still find properties for $300,000 in Melbourne. Well sought out suburbs are close to the million dollar mark. Bubble or no bubble here is the proof you can still buy affordable properties in Melbourne.

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Median House Prices

Melton South – $260,501

Melton – $265,000

Millgrove – $275,000

East Warburton – $280,000

Frankston North – $295,000

Kurunjang – $295,000

Melton West – $330,000

Werribee – $332,500

Wyndham Vale – $335,000

Cranbourne – $340,000

Dallas – $340,500

Albanvale – $341,500

Brookfield – $345,000

Warburton – $345,000

Wallah – $347,500

Cranbourne West – $350,000

Hoppers Crossing – $350,000

Jacana – $350,000

Kings Park – $350,000

Diggers Rest – $350,400

Now, the question arises about whether you should be investing in the cheapest suburbs. They are cheap for a reason, they will remain ugly ducklings into the future. Once in a while, an ugly duckling suburb with great potential comes along which may double in value due to gentrification. But we are looking at natural growth. So, if you want to be a sophisticated investor, look into the suburbs which have better growth patterns historically.

Ever so often I come across the so-called intelligent people, who analyse all the properties in the market, attend all the seminars in the city, they even read lot of books and wait for the right time to invest. Ten years later I find they are still looking to buy a property. They missed on 10 years of capital growth and still looking for right opportunity. All I can say is that they will be waiting for another 10 years while Melbourne will cross million dollar median mark.

Will Sydney and Melbourne become million dollar median cities?

Sydney has crossed the million dollar mark this year. Officially the Sydney median is more than London though it is still behind Paris ($2 million median price). Investors who thought property prices peaked in 2007 were shocked to see the 2010 peak and another one in 2015. Some investors who are purchasing in the right locations will see their properties double in next few years.

We will see single digit growth for Sydney for the next year and double digit growth for Melbourne in 2016.

The 30% fall of the Australia dollar, has made it 30% cheaper for a foreign buyer to acquire properties in Australia. We will see more inflow of overseas investors coming in. Australia’s close proximity to Asian countries is playing a part in rising prices.

Will all the properties double in value? Five per cent of properties which are on the market are investment grade properties. Some suburbs will double in value in the next seven years and some suburbs value will stay where they are. So, buying in cheap suburbs is not a sure shot for success.

Will we see other recession?

Booms and busts are part and parcel of every human life. All humans will see at least seven booms and busts in their lifetime, though the cycles will keep getting shorter. In the past, recession happened every 25-30 years. Now we see one every 10 years. The world just about recovered from 2007 financial crash and we are about to have one more soon. But, don’t worry most sophisticated investors are well prepared for the recession.

BOX2: New suburbs to come up in Melbourne

INTRO: Indian businesses need to move in quickly

A former green wedge area in Melbourne’s west will make way for a sprawling new suburb, after the state government unveiled plans recently to transform the sleepy township of Rockbank into a new suburb home to 25,000 people. Fishermans Bend will accommodate 80,000 people and 40,000 jobs by 2050.

Indians restaurants and grocery shops should be very quick to set up their businesses at initial stages of the development. Indian restaurants should come in early to set up. When new suburbs Point Cook and Tarneit were being established, Indian businesses were the last ones to move in and lost the opportunity to cash in. We recommend Indian business set up very early while the suburb is still in its infant stage.

Indian businesses should realise that commercial property prices are quite low and should invest in them to take the advantage. If you can’t afford to buy, lock in low rents for at least for 10 years. Negotiate for one year lease-free and very nominal increase in rents.

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