The Donald upended the global economy this week, crashing share markets here and abroad. The economic upheaval has dramatically altered interest rate expectations. Markets now anticipate an almost certain 0.50 per cent cut at the RBA meeting next month. A cut of this magnitude will benefit mortgage holders, reduce cost of living pressures and is likely to direct more money into the housing market, supporting housing supply and further price growth.
Whilst more complex economic elements may flow from the current tumult, investment in property in the current environment makes sense for several reasons:
Greater price stability: Unlike shares’ propensity to lose significant value in a single trading session, property values adjust more gradually over time, providing investors with a less volatile asset class.
Tangible asset security: As a physical asset, property has a practical value regardless of what’s happening in the economy mitigating risks associated with company assets.
Fundamental demand: People need somewhere to live, creating a baseline of demand that persists despite economic downturns. This essential human requirement underpins property value in ways that shares cannot provide.
Direct benefit from interest rate cuts: The anticipated RBA rate reductions will immediately benefit property investors, improving cash flow and rental yields while freeing up capital for further investment.
Supply constraints: Higher tariffs may increase building material costs that may restrict new construction (as if it wasn’t already bad enough). Additional supply constraint may further underpin established housing values especially with a rising population fuelling demand.
Inflation hedging: As a hard asset, property has historically performed well during inflationary periods. If tariffs drive price increases across consumer goods, property’s inflation-hedging characteristics become increasingly valuable.
Potential for both income and capital growth: Property offers dual return potential through both rental income and capital appreciation, providing multiple pathways to financial benefit even when economic conditions impact one aspect of returns.
Tax Benefits: Whilst politically controversial, current tax settings allow for costs associated with property investments to off-set personal income tax.
The above is opinion only and does not constitute investment advice.
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