King & Co – Interest Rate Reduction – May 2013

by admin | 13th May 2013

It is not just a good time to buy industrial property – it is the perfect time!

King & Co Property Consultants General Manager Wayne Robson said to day ‘Yesterday’s announcement by the RBA to reduce the cash rate by 0.25% brings this generation of business owners into a business zone not encountered for over 50 years.

Astute property buyers often have three key criteria when making a decision to purchase industrial property. Firstly and second are usually the position of the property and the design and layout of the building. Both these criteria are property specific and more importantly will reflect the requirements of the buyer.   

The big point for today is the third key criteria, timing.  In real estate as in all business, timing is everything! There is a time to sell, a time to renovate and time to tear down.  Right now it is a time to buy

For investors the yield on industrial property is particularly appealing at the present time and the investment is even sweeter when you look at the return on equity which in some cases could be in excess of 12.5%! With the ability to borrow at the lowest rates in 50 years investing in industrial property makes even more sense.

For businesses considering leasing, those with a keen eye for business will find that the ‘should I buy or lease’ question is amazingly easy to answer right now.  If the business has the borrowing capacity to buy why would you pay an owner rent equating to 8% of the value of the property when you can purchase using loans possibly as well under 6%?. 

It seems evident that we are now bouncing along the bottom of the economic and property cycles. There are a stack of reasons:

  • Generally, residential auction clearance rates are improving on the eastern seaboard. 
  • There are promising economic signals from the United States and China – the collapse has not happened! 
  • The stock market has been running hot for many months, the pundits are warning of an overheated stock market again. Perfect for property!
  • Importantly, banks seem to be moving back into the market, evidenced in part by the immediate decision yesterday of the major banks to pass on the whole rate reduction. 
  • Most significantly there is now a stated interest by the RBA in the exchange rate for the Australian Dollar.  Yesterday’s downward movement  against the US dollar will be welcomed by many businesses. 
  • The Commonwealth Budget will be handed down this month. It is an election budget and although it seems increasingly unlikely the government will be re-elected it is reasonable to expect that they will use the budget to attempt to bolster their position. This may auger well for business generally through increased consumer spending.  Let’s wait and see on that one.

King & Co is seeing strong interest from investors and there are a good number of owner occupiers and tenants who are confident in their own ability making the decision to move.

We may never see these circumstances again – so timing is everything – make sure you take advantage of it – it won’t last forever!

 

Wayne J Robson
General Manager
King & Co Property Consultants   

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