Join me as I discuss current issues and innovations relating to finance and property and how these may affect you, the property investor and developer.
Each episode features a special guest, we have a casual discussion in my guest’s field of expertise while enjoying one of my favourite pastimes, which is Gourmet French cooking at home in my kitchen.
Episode 5 - November 2021
Special Guest Dr Stephen Christie, Co-Founder of Portum Private Wealth
Topic of Interest The Australian Economy, Inflation and Interest Rates
Who it may affect Commercial, Industrial, Retail, & Residential Property Investors & Developers
This episode’s dish Côtes de Veau à la Normande
topic overview
The Australian economy is inextricably linked to the world economies by foreign trade, immigration, and mutual interdependencies. Never before in our history as a species have we been so connected to each other, especially by technology.
Inflation is considered by many as an evil in the economy; certainly in the case of hyper-inflation or where it coexists with stagnation (stag-flation); however, a healthy level of inflation is required to provide capital gains to investors’ asset portfolios, especially to property investment.
A common misunderstanding with mum-and-dad investors is that the interest rates payable on home loans are linked directly to the Official Cash Rate (OCR) as set by the Reserve Bank of Australia (RBA); nothing is further from the truth…
Interest rates in both commercial lending and residential lending are affected by a multitude of factors, inflation being one, where the Nominal Interest Rate (the rate we pay for credit or the rate we earn on deposits) is a combination of the Real Interest Rate + Inflation, and another is the Financial Markets which set the interest rates at which banks and other institutions borrow to then on-lend to their customers after adding treasury margins and profit margins, etc.
The covid 19 era world has experienced pressures and factors affecting that are largely similar to those experienced during the GFC some 10-12 years earlier; however, the Australian property market has reacted and behaved completely the opposite to how it did during the GFC.
During the past 12-18 months, businesses at both the small and big end have struggled with employee layoffs, business closures and property vacancies (across commercial, retail, and residential sectors), with business investment and consumer spending reduced, and the velocity of money significantly slowed; government covid 19 support and cash flow boosts have been critical.
Notwithstanding, the property market and in particularly residential sector, as well as the equities markets, have seen substantial asset value appreciation. The commercial and retail property market sectors have also held their own, while developers continue to produce low, medium, and high density residential projects.
Unlike with the GFC, the difference has been the unprecedented levels of liquidity chasing limited investment opportunities both in financial markets and in domestic investment markets (property and equities) including in many of the newly emerging ‘lenders’ within the non bank lending sector.
In this episode of In JP’s Kitchen, the Australian economy is examined in broad detail with a focus on the positive and negative aspects of inflation and how it may be considered a necessary evil, certainly depending on from which perspective one looks at it.
We also take a look at how interest rates are set and some observations in macroeconomic trends and what one may expect in 2022 as we continue to navigate through the unchartered waters of this unprecedented covid 19 era economy.
Join us to find out what this may mean for commercial, retail, industrial, and residential property investors and developers.