Strong Return to Property Investment

Traditional investment mainstays, bricks and mortar are back in the race for investors’ cash, beating out the volatile sharemarket and the accompanying doom about the global economies, says property market commentator, Michael Grochowski.

Although slow to recover after the gloom and doom of the post GFC years, Grochowski says the flow of cash to property is rising, thanks to lower interest rates and a thaw in lending deals from the banks.

The latest Westpac/Melbourne Institute monthly index of consumer confidence shows that property has made a comeback. In the latest survey concerning the wisest places to put new savings, 25 per cent of respondents said ”real estate”, up sharply from a little more than 18 per cent in the preceding quarter’s survey, according to Grochowski.

Quoting chief economist at CommSec, Craig James, Grochowski said the real value in the Westpac/Melbourne Institute monthly index of consumer confidence was the question about the wisest place to put new savings. ”No doubt the fact that interest rates are coming down, immigration is rising and new building remains weak were all aspects causing respondents to nominate property as one of the wisest places for new funds.

”In other words, demand is expected to rise but the supply of homes is not expected to keep pace, so prices are expected to rise. According to Grochowski, the logic is entirely reasonable.

”The positive views on property purchases represent good news for the beleaguered housing market. Hopefully consumers will follow through on expectations.”

Mr James said that while the Reserve Bank would be worried about consumer gloom on the outlook for their finances, rate cuts must stay on the table. Commenting on commercial property sales, Grochowski said that as a result some superannuation funds and individuals were paying cash and financing after the close of a sale.

Investment A-grade credit with long-term leases can still get up to 70 per cent loan-to-values and have a positive spread between the low interest rates and the yield on the real estate; and some are using lines of credit with plans to refinance later, said Grochowski.

Wealthy individuals are following suit but are showing a preference to the strong leasing market in the less-traditional sector of fast food and convenience-based assets. Grochowski concluded that this trend is setting the pattern for property investment in the year ahead.

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