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Ben Kingsley Blog post by Ben Kingsley

RBA Rate Decision – November 2014

Hello! On this Melbourne Cup Tuesday the race that stops the nation. Well it didn’t stop the Reserve Bank board meeting today and again, as well predicted the Reserve Bank kept interest rates on hold at 2.5%. No big changes, no big surprises. The Reserve Bank is still concerned about the headwinds that the economy experiences in terms of its GDP numbers. On a positive note the inflation numbers have come down and that was well predicted by the Reserve Bank in terms of, they weren’t too worried when the numbers got around that sort of 3%. They’ve come come back around 2.6%. They are still concerned about the level of business investment into the economy and that’s obviously about the forward forecast in the headwinds in which the economy’s going to experience in the 2015. The other concern is the statistics that we’ve been getting in regards to employment numbers. The Australian Bureau of Statistics have actually said to us that they’re not quite confident that the data that they are getting of late had been reliable. So they’re doing some back testing and making sure that they can get those numbers back on track. However in the Reserve Bank minutes, the Reserve governor did talk about that they did say some signs of employment activity and some movement in a positive sense. Certainly from a construction point of view, in terms of residential construction we’re seeing some good activity in that particular space and that is also relate to what I want to talk about in this particular video today around the activity in the property investment market. It’s concerning the RBA and they’re looking at macro-prudential ways in which they can control that. They are concerned about property prices getting too high and then we are seeing a correction.

The property market is a very fundamental market because of the on sale. In other words, the economic activity of which property generates. I’ve heard commentators say for every $1 that goes into property, around $10 goes into the economy.

The reason for that is obviously when First Home Owners buy a house or when people move into a property, they’ve got to get it fitted out with carpets, blinds, curtains and so on. This affects retail and the construction side, the chippies, builders, manufacturing and all those things are positive signs. But we don’t want to see a situation where we are seeing prices get beyond what their reasonable or fair value is once we see interest rate going up. So that’s what they are looking at now.

So why are people looking at investing in property over other alternatives?

Well, we saw this month, the jitters of October, which we’ve seen historically in the share market. There are concerns about the numbers that are happening around Europe, Japan, Chinese GDP numbers are in the 7. All these are concerning people so people are, I suppose, taking a flight to safety – that old bricks and mortars approach as oppose to getting into a volatile market like the share market is being of late. That’s what they are doing. They are also saying that, “If I park my money in the bank, I’m not getting the return. My money is not working hard enough for me”. They are seeing property as something that’s obviously growing, that’s positive. There is a word of warning though. Not every property is going to do well. You really need to understand the strategy and your asset selection is going to be critical. There will be people that will lose money out of investing in property and probably more so because everyone is following the same band wagon. So please seek out professional advice from a qualified property investment advisor in your area and of course, come and see us at Empower Wealth. We’d love to help you guide you throughout the process. There are still great buying opportunities around the country but there are markets that are certainly over-heated and there are areas and types of properties that we’d be avoiding at the moment cause we think they are going to have a very very poor performance into the future. Thanks for watching.

 

(Those people watching/reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)

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