The latest interest rate cuts and property?

The Reserve bank has dropped the Official Cash rate by .25 basis points today and hinted that they will drop again this year . Most will be expecting that to flow straight into lower mortgage rates which is “mana from heaven” for property owners and property investors .

However  bank economists are saying that the 80% of the money we borrow from overseas is not getting cheaper and in fact has gone up a little bit . So we can expect the floating rates to come down a fraction but fixed rates may not move this time around. The main signal from the Reserve bank is that interest rates are not likely to go up anytime soon.

The big impact the reduction will have on the market is that the  interest rates people receive from the banks for money deposited will go down and that means lots more people  are going to be heading to the Real Estate Market to find an alternative to bank deposits .

As these people join the already crowded house buyers list there is going to be  more upwards pressure on property prices. Most properties in the investment category are receiving  multiple offers within weeks of going on the market. All agents in our company have a long list of investor buyers looking for ” a good property in a good area with a rental return of over 6% .”  These properties do not exist anymore and buyers need to drop their expected rate of return to 5% or lower or move into the lower socio- economic areas.

On Average property prices  in Whangarei are rising at $1,400 a week and that rate is expected to increase to over $2,000  per week later this year . While a good rate of return is great , in a rising market like this, your capital gains will greatly outstrip your rate of return and therefore its smarter to get hands on the property at today’s prices than to concentrate too much on the return.  In six months time today’s property prices are going to look  cheap and rental increases will catch up with your ideal rate of return.

If the property meets all your other requirements, except you rate of return, pay the money and secure it now as you are going to have to pay more next month.

 

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