On August 2 the Reserve Bank (RBA) decreased the cash rate by 0.25 basis points, bringing the current rate to an all time low of 1.5 per cent. Experts nationwide have suggested that the rate could drop even lower – perhaps even nearing zero.
Alberto Gallo, a leading credit strategist has proposed to the Sydney Morning Herald that the rate could continue decreasing:
"There is going to be a very long environment of low, near zero or negative rates, and clearly Australia is converging to that environment," He said.
The continued decreases may have considerable ripple on effects for Australia's property market, the nature of which investors should be aware of. Let's have a closer look at what could happen, and how it may affect your property investment plans.
How have the banks reacted?
Australia's four biggest banks have cut interest rates on residential home loan products for both owner occupiers and investors, in response to the RBA's move. The cuts varied slightly but generally sat around 10 to 13 basis points, resulting in record low interest rates.
A lower cost of borrowing will help ease the pain of impending median price drops, forecasted from 2017 to 2018. QBE has proposed that during this period median house prices will decrease in Sydney, Melbourne, Darwin, Perth and Adelaide, with most other cities showing slowed rates of increase.
The era of quickly flipping investment properties for massive capital gains may be nearing an end.
What do future changes mean for you?
As a result the era of quickly flipping investment properties for massive capital gains may be nearing an end. While it may seem that investment is less lucrative as a result, this may not be the case.
Lower interest rates will clearly mean that you're paying less on the money you borrow, which should help widen the gap between the costs of owning property and income from rent. While you might not enjoy capital gains as large as you have in the past, these factors should make rental properties a more lucrative and viable investment .
This may necessitate you change your strategy from quickly flipping your property for a profit, to owning and renting for the long run, enjoying lower profits over a longer period.
Instead of wading through the process by yourself, enlist the help of Advantage Finance. We can help you find you the right loan products to make your investment a success, thanks to years of experience and expert knowledge of the market.