2012 was an exciting year for Property Planning Australia, as we moved office in both Melbourne and Sydney and our team grew to include four new members. Our Tax Accounting partnership continued to grow and we were proud to announce a move into the Adelaide market, with our mortgage broking and property services now available in South Australia, increasing our national presence.
To kick off our newsletter for you in 2013, we will start by looking at the year that was and look for signs of what might be in the year ahead.
2012 was a year of ups and downs that culminated in some return to confidence in the second half of the year. Share markets in particular, grew strongly from July generating a solid growth return for the year of 12.9% in Australia. Some overseas markets in fact outpaced Australia, with the US S&P 500 finishing up 16.61% and close to record levels.
The property market nationally lifted from their lows of May 2012, posting a modest 1.8% growth for the period, as interest rates dropped overall for the year. However the collective result was still a slide of 0.4%, according to figures from RP data. Certain states/territories delivered strong performances, with the stand out being Darwin and small gains in Sydney and Perth.
Interest rates dropped by 1.25% in total in Australia for 2012, to end at 3%. Unfortunately though, mortgage rates did not enjoy the full benefit of the reduction, falling only 0.85% on average for the year. The average mortgage interest rate is now about 5.7% with basic discounts applied. While typically an aggressive move to reduce rates in this fashion would provide a significant stimulus to property prices, the market has remained a lot more subdued. The reduction has acted to put some stability back in the market, however has not triggered any significant price growth as it quite often does.
Globally, some positive measures were taken by the European Central Bank and the US Federal reserve in the middle of the year, which acted to support confidence in share markets and started a spike in share prices. Both related to printing money. In Europe the intention is to keep countries borrowing rates on sovereign and company debt at a level that is sustainable. This was one of the benefits of the European Union in the first place and was received well by the market. In the US, Ben Bernanke announced the US Fed will print $40 billion per month until at least the middle of 2015 or as long as it takes to have a meaningful impact on improving unemployment numbers. This is a positive stimulus to assist the US economy to grow. In turn the share market performed well as some confidence resumed and some of the risks the market has been worried about were reduced.
The year ahead:
2013 should be another positive year for share markets and indeed many are tipping shares will be the best performing asset class. Of course risks prevail and at this point the biggest potential risk is whether an agreement can be reached between the Democrats and the Republicans in the US in late February to avoid the so called Fiscal cliff. A last minute agreement was reached in the final hours of 2012, which was the previous deadline and while a positive outcome from this was agreement to increase taxes on American’s earning greater than $450,000 (a compromise fiercely resisted by the Republicans to date), they could not reach agreement on spending cuts. This is the other side of the equation that must be agreed upon, to avoid onerous ‘pre-defined’ spending cuts and tax hikes, which will highly likely tip the US into recession if they were to eventuate. The broader opinion on this in share market circles however, is that a deal will be done to avoid this. At this point, this broader view is reflected in share markets remaining stable, however we could well see some volatility around the time of these negotiations, before we have clarity of the final outcome.
It is our view that the Property market should find a floor this year and well chosen property will enjoy growth, supported by a low interest rate environment. This is likely to continue throughout the year, with many predicting a further reduction in Australian borrowing rates. Some like ANZ & Macquarie say as much as 1%, meaning the Australian Cash rate would drop to only 2%, which would be a new Australian low. When you consider that the average rental yield in Melbourne is 3.6% and is 5.5% on inner city properties in Sydney, it will be possible to buy some good quality growth assets either neutrally geared, positively or marginally negatively geared, which provides a good impetus for heightened demand and in turn capital growth.
In Melbourne and Sydney, our buyers advocates say numbers have been increasing at open for inspections and at certain price points this is a combination of a re-emergence of first home buyers, which have been in low numbers since 2009, as well as investors with improved cashflow and borrowing capacity, which are other positive indicators for likely improvement in prices on well chosen property in the year ahead.
How can Property Planning Australia help in 2013:
Mortgage advice – the banks are pricing aggressively, providing above average discounts by historical standards. We have been able to negotiate very good discounts for a number of our clients, which is assisted by our relationships and the service level agreements we have with many of the lenders. We can also assist you to get access to equity for your investment plans. We will review your existing mortgage at no cost for you and likely can improve things for you in the current environment. CLICK HERE TO DISCUSS
Buyers Advocacy – Our buyers advocates can assist you to buy or sell in Melbourne, Sydney or Adelaide. If you are making a property decision and would like independent direction on the right moves in 2013 CLICK HERE TO DISCUSS
Super Advice – we have identified one of the lowest cost superannuation offers available in Australia and have developed a comprehensive and cost effective advice service around this. We will review your existing super at no cost to you and partner with you to help you take control of your super. Super is the biggest investment asset most people will have in retirement yet far too many people do not embrace it as important, because they do not understand it. CLICK HERE TO DISCUSS
Financial Planning – we can develop a road map for achieving your financial success. We favour a balanced approach to your investment strategy and are uniquely positioned to incorporate your interest in investing in property, while assisting you to gain exposure to the share market, which with a long term investment outlook, we believe is good timing. CLICK HERE TO DISCUSS
Risk Insurance – Whether you are already insured or not we can review your needs for you and assist you get covered with the lowest cost, the right contract and with minimal time on your part. We do not charge for this service, as we are remunerated by the insurers if you decide to proceed with cover. Importantly, what we are paid makes no difference to the price you pay for insurance, so our drive is simply to get the best outcome we can for you. CLICK HERE TO DISCUSS
• Written by James McFall, Director & Financial Planner, Property Planning Australia