Are you thinking about where to invest your money in 2009? Should it be the property market or the share market?
At times like this we tend to turn to the things we trust; the security of owning a property or direct shareholding in companies.
The property sector has some sound reasons for why it’s still a bright spot for 2009.
· Interest Rates have and are continuing to come down. The Reserve Bank has cut interest rates with the average mortgage interest rate reducing by 2.7%.
· Our financial system is still functioning very well, with very competitive and flexible mortgage products available for the right applicants.
· The increase in the First Home Owner Grant has provided an excellent foundation for first time home buyers.
· Some areas of the market have been selling very well and as usual in a slow down, the inner suburbs seem to hold up the best and particular styles and types of houses fair better than others.
· Investment returns are making their way back to the long-term averages rather than being at the lower end of the spectrum. We are seeing returns averaging between 4-5%. The latest figures released by the Real Estate Institute of Victoria show that Melbourne’s vacancy rates are currently below 1.1%. As a result of the low vacancy rate rents have increased and should not show a sign of decline until the vacancy rate increases.
· The most recent ABS census recorded that there were 447,074 rental homes in Melbourne, which means that in November 2008 there would have been approximately 5,000 vacant dwellings for prospective tenants to choose from. For a city of almost four million people, which is growing by around 1500 new residents per week, it is not difficult to understand the stress being placed on the rental market.
· We have enjoyed substantial increase in equity in our properties over the last 10 – 15 years.
The share market is also now at record lows.
Positives
- Share prices. They are at 2003 valuations- excellent buying.
- Dividend yields are very attractive.
- Australian interest rates have been cut aggressively. Assisted by the weaker A$, the policy stance is now very accommodative.
- Companies borrowing cost pressures are beginning to ease – energy, agricultural, steel, interest expense.
- The dividend yield of the ASX top 200 companies is now comfortably higher than the cash rate returns. Apart from saying something very powerful about the current valuation of equities, it is also sending a strong message to income-seeking investors.
- The aggressive move from the RBA (with further rate cuts to come) along with the large fall in the A$ and various fiscal initiatives from the Government will provide a meaningful buffer against the weakening global economy in 2009.
What type of shares to look for? Understand the trends.
Maintain cash – There are so many cheap stocks in the market that you need to be ready for opportunities.
Blue chip stocks – Well known brands that will prosper from the pain of 2008.
Energy & Food – Large food producing economies will see excellent prices in the future and will actively pursue options for increasing supply.
Banks – The banks have never been stronger and will remain maintain their monopoly on the financial services sector.
Infrastructure - Many Governments around the world are talking about the need to boost infrastructure investment to get the economies going again. The beneficiaries of the spending will be contractors and suppliers.
Health Care – Perhaps the most fundamental of consumer staples. What price weakness there is provides the chance to include relatively risk adverse healthcare stocks in your portfolio.
Technology and Demographic Change – 60% of Australia’s population is under 40 and while the population is ageing, the new generations are very different to those who have gone before. They are entertained differently, communicate differently and access information differently. Broadband etc
Emerging Markets – China will grow, India will grow. They have no choice, they have to grow. They require energy and resources to feed their growth.
Although it is difficult to see, the 2009 outlook for the ASX Industrials, which is now the highest yielding asset class available to investors, is slowly improving.
Taking a long term view, it is inevitable; there is only one likely destination – investment markets will return to normal as they have in the past. After a period of disruption, life always returns to normal. Most people keep their jobs and they buy things they want. Those who lose jobs will get new jobs; remember there is an impending shortage of workers in Australia. Homes will be built, new ideas and companies will emerge, and new wealth will be created. Only the nature and length of the journey to normality are unknown.
In a recent article (the New York Times, October 17, 2008) the world’s most famous investor, Warren Buffett, wrote the following about shares:
“Let me be clear on one point. I can’t predict the short term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. What is likely, however is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the Robins, spring will be over”
If you are in the market to buy and are considering taking advantage of the equity in your property/ies and the lowest interest rates since early 1965, now is a critical time in the property or investment cycle. Be on the lookout for the best buying in both property and direct shares for the last 7 (or if the experts are right the last 10 years).
Remember the motto: “get rich slowly”. Hold for the long term and only buy what you can afford to hold.
So what type of property or shares should I buy?
Which suburbs and companies should I invest in?
How do I go about investing in the property or share market?
This is where you should only seek the right advice. Feel free to contact our experts:
Warwick Brookes | Domain Property Advocates
Phone (03) 9509-6388 |Email wb@domainadvocates.com.au
If interested in learning more about this update please contact me today!
Tags: average mortgage interest rate, Dividend, flexible mortgage products, home, mortgage, mortgage interest rate, property, real estate institute of victoria, sector, vacant dwellings
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As Domain Property Advocates continues to grow I will continue to provide superior service to those choosing to use property as their investment. It is an important choice of who to choose as the one responsible to look after your property. You can be sure that Domain Property Advocates will always strive to be the best. |  |
