RBA rate Rise assists NZ property InvestorsBy
As I am in Sydney currently I have the luxury of reading and watching more than my normal dose of Aussie reaction to the Reserve Bank of Australia’s interest rate rise yesterday.
Whilst it had been pegged as a 50/50 call by local commentators I get the feeling it may be the right ladder against the wrong wall.
The fact is that Australia has meandered through the recession relatively unscathed. There are of course significant numbers of small business closures and bankruptcies but they have been those who were close to trouble anyway in many cases or in particularly hard hit industries. As to why Australia has fared so well one has to say their government policy around immigration and compulsory savings for all workers has proven to be a very, very sound strategy. They have also spent up large to keep the wheels on the economy and that is why they have moved rates now to start to “buy back” their stimulus funding.
So the big concern in my opinion is that they are going to immediately hit the pocket of every homeowner, many of whom are just starting to breathe again. In addition there are thousands of first time home owners helped into their own homes through government grants who are not yet used to the costs of home ownership as opposed to renting and many of them may well sink before they learn how to swim.
And lastly Australia has enjoyed the support and trade monies of China, an economy that just will not die, YET!
In reality Chine cannot be guaranteed to keep going indefinitely and if their economy does retract then the mining and trade related feast Australia is enjoying could end in tears for the whole economy.
The rest of the world is still in trouble and for Australia to engage recovery policy may set them up for a bigger fall in the next year or 2.
So there’s my take on their activity, now the good news for New Zealand.
The reaction in the financial markets in OZ has been most positive. Finance markets, share markets and associated industries are all welcoming in the great recovery and generally everybody is feeling good. Australian banks are once again able to borrow money without wholesale funding government guarantees and generally life is good.
This will help NZ investors in the short term anyway in 2 areas.
1. As mortgage rates rise here there will be increased interest in New Zealand property from Australian investors and that is always good for the supply and demand equation.
2. More importanlty the Australian non bank lenders will start to spread their wings again and return to NZ bringing their non conforming loans with them, just like they did in 1999/2000.
You see the absence of pain in this recession for Australia will ultimately bring a rapid return of risky behaviour in the financial markets because they haven’t learned anything yet. So easier money is likely to appear on NZ’s doorstep sooner rather than later. I don’t think this is particularly a good thing in many ways, but i think it is what will happen.
So expect to see “lowdoc/nodoc/tell me your name and you can have the money” money returning t ouor shores. It will initially be at higher interest rates than banks but in terms of investing we don’t really care about the rate, just show me the capital!!
So all in all thanks to the RBA I think 2010 is going to be a great year for us kiwi investors
Stay Inspired and Stay Safe ~ Dean Letfus @ www.MassiveAction.tv
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