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I’ll admit I’m a bit obsessed with interest rates and how far they can fall. I use to think zero was the limit but it turns out it is not.

Negative interest rates have been available in Europe since 2014 apparently.  The talk of the RBA dropping rates to these levels proves that nothing is off the table when it comes to getting the economy going. However, if you are a property investor, this could get really interesting (ok, pun intended).

A property’s rent well and truly covers the standard outgoings but rarely the mortgage’s interest payments as well unless the loan is relatively small. Banks are now particularly interested in attracting and holding borrowers who have a loan to value ratios (known as LVRs) of less than 60% and are offering extra discounts to win your business.

If mortgage interest rates fall to zero or near it, we could reach a point where much of Sydney investment property could be generating positive cashflow. This used to be the strength of regional property investment but never Sydney property.

In the past, people sold their investment property when they were retiring and invested the money to generate an retirement income.

Maybe that could change and residential investment instead could become an acceptable income generator.

SQM research has released their report into Vacancy Rates across the country. Across Sydney it shows that the vacancy rate for June 2019 now sits at 3.5% which may not mean a lot to many. Statistically 2% vacancy is considered to be indicative of stable rental market while higher vacancy rates suggest rents will fall.  So, 3.5% isn’t great news. In June 2018, the vacancy rate in Sydney was 2.8%.  That’s a deterioration of 25% from last year to now. It probably won’t surprise you that unit vacancies are worse than houses.  This is a direct result of the unit building boom. However, our area is different as they say, so I accessed a specialist report from SQM Research for postcode 2112 because it is indicative of our local area.

Vacancy rate for 2112 is sitting at 4.5%, and that is really not good.

On property prices and growth, SQM use a star rating system for each postcode to identify areas they consider good buying.  2112 comes with a 3.2-star rating which means as they say,

‘There is greater than average risk of the area underperforming over the medium term’.

 But always with statistics, you have to ask, ‘Compared to what?’

Well across NSW, postcode 2112 still rated better than close to 60% of all the postcodes.  In fact, around 50% of postcodes were rated as areas that required ‘Strong Caution’ or just flat out ‘Avoid’. Real estate is going to stay tough for a while, but we will still be better off than plenty of other Sydney property owners.