The Balancing Act

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Expert Advice with Todd Hunter. 06/05/2017

From time to time I am gob smacked by those “apparent” industry leaders and their inability to manage our economy. Recent news from the RBA in late March spoke about the central banks fear of rising interest rates.

Aren’t these guys supposed to be the smartest of the smartest?  With degree after degree in financial markets and economics etc? Well they aren’t showing it!

We currently live (Sydney & Melbourne) in one of, if not the most, expensive property markets in the world. This has been driven by our cheapest interest rates ever on record. The cheap rates help stimulate the economy. But the length of the low interest rates has gone on for years now, giving families a false sense of cheap money. Cash is being thrown around everywhere. The real economy paints a different picture with our biggest national deficit in history and it’s increasing!

As dumb as this sounds, there is a generation of home owners and investors, who have never seen interest rates at 5%.

Now don’t get me wrong, I don’t want to have to pay more on interest than I have to. But on the reverse, higher interest rates present much better buying opportunities. And the profit in investing is in the buy!

Ironically the RBA are now reluctant to raise interest rates, amid fears the heavily leveraged household sector would react badly to higher borrowing costs. But hang on, isn’t the reason they are so leveraged because you reduced interest rates so low and for so long. So you gave them the noose and allowed them to irresponsibly borrow beyond their means, and as a result property prices have gone insane and now not controllable by you in fear of what may happen?

Remember I started this Blog with the most intelligent people running our economy. Well I’d like a seat at this table. Here’s what I propose:

Most of the banks have increased their rates recently. This has had almost zero effect, as the general public don’t listen or don’t know. The banks or APRA need to introduce postcode and property security type interest rates.

The address of the borrower is irrelevant; it’s the location and security type of the property that needs to be considered. The banks already have limited restrictions on the LVR’s for different securities and locations but not interest rates.

By doing this, we could increase interest rates for new loans in Sydney and Melbourne to slowly start to cool their markets. But reduce them in places like Perth & Darwin to further stimulate their economies and direct investors there. Brisbane, Tassie, ACT & Adelaide could remain as they are.

Then break them up even further, by increasing interest rates considerably on high-rise units in Melbourne, Docklands, Zetland, Brisbane inner city, Gold Coast etc. To control their huge oversupply problem. If there are no buyers, developers won’t build! Simple math!

In growing regional areas, slightly reduce rates to entice activity.

It’s not rocket science!

Perhaps if this was done years ago, then thousands of investors would not have been burnt by investing in mining towns.

Now sure there will be some lobby groups and investors screaming that it’s unfair. Ah well… better than the alternative we currently have. That being, when interest rates finally go up, Australia will have it’s real GFC. And when they day comes, I will be cashed up ready!

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Todd Hunter is director, buyer’s agent and location researcher for Sydney-based wHeregroup. He is an active property investor himself and amassed a portfolio of 50 properties by the age of 31. For more of Todd's musings, see his Expert Advice section on our website OR visit the wHeregroup blog.


Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

 

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