The decision by The Reserve Bank to cut interest rates by 0.25% to a record low of 2.75% at its May 2013 meeting will give the Australian property investment market a major boost over the coming months.
Blogger: Paul Bennion, DEPPRO tax depreciation specialists
Official interest rates are now at their lowest level in more than 53 years and their lowest level since the RBA introduced target inflation rates two decades ago.
The timing of the latest interest rate cut is perfect for the property market since many people make a decision to buy an investment property during May and June each year to coincide with the start of a new financial year.
This latest cut in official interest rates has been designed by the RBA to encourage more people to invest in property and construction instead of passive income such as cash.
With the mining boom set to peak this year, the RBA wants to encourage greater activity in other sectors of the economy such as property so that our overall economy continues to remain strong.
Investors who have built up cash reserves over the last five years will find property an attractive investment opportunity because real estate in a number of capital cities is currently undervalued.
DEPPRO is predicting that areas such as Brisbane and South East Queensland in particular should rebound strongly over the second half of 2013 due to falling interest rates because the underlying economic fundamentals of the local economy still remain sound even though property prices have been depressed for a number of years.
The latest interest rate cut may well prove to be the tipping point for investors who will now target properties in Queensland and throughout Australia which they believe to be undervalued and poised for an upswing.
At the same time, these astute investors can now achieve higher returns through property investment than keeping their money as cash in savings.
For example, in some capital cities of Australia, rental returns are now above 6% while fixed rate borrowing costs have fallen below 5% which inturn is resulting in an influx of property investors during recent months.
Historically, the property market is very much influenced by interest rates and the expectation of whether they will rise or fall.
Currently, there is a growing expectation that interest rates will fall even further and this expectation will give property investors the confidence to purchase property.
Following the latest interest rate cut, DEPPRO recorded a 10% jump in the number tax depreciation reports prepared for our clients compared to the same period for 2012 indicating that this latest cut in interest rates has indeed proven to be a key tipping point for many property investors.