Finance Market Update - 20 November 20
It makes sense to own property rather than rent now more than ever. In this update we talk about how low rates make being a property owner the better option and the government finance incentives available for small businesses.
Renting vs buying
With rates so low it might make more sense for you to own than rent a property.
If you look at the cost of renting people often call this ‘dead money’ because you don’t get any asset ownership from it, you are paying for the roof over your head not the bricks that hold it up.
By owning a property, residential or commercial, you still incur a cost of the mortgage, but you get the future asset value growth as well as the roof and bricks.
With interest rates at their lowest in history if you are currently renting it makes sense to think about buying.
It makes sense because the monthly rent you pay might be pretty similar to the mortgage repayment and if that is the case it definitely makes sense to buy.
For example, if you are paying $3,000 a month in rent that is comparable to a repayment on a $700k mortgage. There are factors such as term of the loan, type of repayment and rate but in principal this is a fair comparison.
In this case that $36k a year you are are paying in rent is ‘dead money’ whereas if that went towards a mortgage you are getting the asset value growth, and asset values are heading upward.
We have talked a lot recently about the direction of property prices and I said back in June that prices would recover this year and boom next year and this is certainly going to happen.
The recent RBA rate cut was the final piece needed to make the boom a certainty, and with the talk of stamp duty being eliminated in NSW the coming boom could be even bigger than first thought.
It is reasonable that we can now expect a 10% to 20% residential property price appreciation over the next few years.
It is worth mentioning that the high-level figures of property price growth will cover up the fact that it is house prices that will appreciate the most while apartments appreciate less (if at all).
The figures will also be slanted as people spend big in more regional areas to get more space and move away from congested cities and seasonally low stock continue to push up the average bid upward.
Unfortunately for commercial property there are still considerable headwinds, but this is mainly focused on the larger office towers and A-Grade assets. Smaller retail shops, office suites, industrial buildings and warehouses are fairing considerably well and there are very compelling financing options specifically for those kinds of properties.
If you want to build wealth through property Let’s Talk about your options.
Getting back to business
Seventy five percent of jobs lost because of the virus crisis have now returned.
This is an astonishingly fast rebound the government deserves a lot of applause for the handling of not only the worst health crisis in a century but the worst economic crisis in three decades as well.
Rightfully so the government has been laser focused on creating jobs and supporting small business.
Politicians often talk about small business being the engine of the economy but do not invest in them, this time seems a bit different as the JobKeeper and tax incentives are very powerful tools now given to businesses to get back to work. A cynic would say that is just because they know any government that is in charge when the country plunges into a deep recession would be voted out.
It is certainly true small business drives the economy as there are over two million small businesses which employ millions of people. Six hundred and fifty thousand jobs have been created in the last five months alone.
One of the key incentives the government introduced to combat the virus crisis were the government back SME loans.
The second-round scheme has been live since October and ironed out many of the issues from the first one. This includes increasing the loan amount to one million, up to a five-year term instead of three, not forcing a repayment holiday which ultimately pushed up the repayments, capping the interest rate at ten percent and expanding the business loan purpose.
Alongside the government backed loans the instant asset write off extensions and changes are providing small businesses incredible support so Let’s Talk if you think this finance will help you get back to business and grow.