With 2015 coming to a close, our focus now begins to shift through the Festive Season that is fast approaching and onto the year ahead – and on the financial and economic front the news is good!
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Rising property prices
News of stable and growing property prices and low interest rates delivers opportunities for us for wealth creation.
Nationally, the average annual growth rate of property still remains positive.
Despite reports property prices across the capital cities have fallen by 1.5% in November, with Sydney down 1.4% and Melbourne down 3.5% for the month, when we take a wider view to put this into perspective news is still on the positive side.
With these changes we have seen a swing towards a buyer’s market. Those looking to purchase property for investment or to live in are in a better position with more choice and better ability to negotiate.
As we’ve seen over recent years, capital cities have been at different points in the property cycle. The opportunities in 2016 stem from understanding these smaller markets, and finding those cities, suburbs and streets that will continue to perform strongly.
We should be taking advantage of the strong growth signals for our economy to take on some risk and buy investments that can increase in value over time.
Low interest rates for the foreseeable future
In Australia, we are still at historical lows for interest rates. Although there is talk of an increase in the U.S it will be some time before rates increase in our country. Low rates create opportunities to create wealth particularly through shares or property.
When borrowing, it’s important to look at what it costs to hold residential property in the present market. With interest rates at just below 5% and rental yields at close to 4%, a 1% holding cost (or $10,000 a year for every $1m of debt) means it has never been cheaper to hold an investment property portfolio. When tax is taken into account this cost would fall to around $7,000 p.a. (or $135 per week).
Those of us who are good savers and have the discipline to allocate cash to wealth creation really should be using this avenue to grow their money for the future.
Hence, if you have equity in a property or cash to invest, there are opportunities for smart investors to make money through growing property prices.
Alternatively, one may want to borrow to buy shares and take advantage of the low cost of money. Be aware though the rules for borrowing to buy shares are a little different to those for property and you can suffer from market declines.
We are seeing improvement in a range of economic indicators for individuals and businesses. These levels have not been seen since before the GFC some 7 years ago.
More confidence in business and consumer activity means a better retail and spending environment, which is good for those of us in business as profits should grow.
For individuals, when businesses spend money on growth and new opportunities, they look to hire more staff and that expands our employment opportunities. With more demand for workers than supply one can expect wages to grow, and with more disposable income we can use our spare cash to invest and grow wealth.
Having the confidence in always being able to find a job means we can action the strategies above and invest into property and/or share portfolios.
All these positive economic factors mean there will be many opportunities for smart and savvy investors in 2016, so seek advice from your team of professional advisors to make the most of what the year ahead will have to offer.
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