State of Play

December’s official Reserve Bank (RBA) 0.25% rate cut brought interest rates to the lowest level
seen since the Global Financial Crisis. While the RBA decided to leave the cash rate on hold at 3% at
both its monthly meetings so far this year, according to the March governor’s statement, recent data
suggests the effects of previous cuts are now beginning to flow through to the broader economy.

For Sydney property investors at least, the current gearing equation is more attractive than it’s been
for some time. Variable rates from some lenders have now slipped below 5%, with the average
discounted variable rate at around 5.65%. Low vacancy rates of less than 2% in the inner city suburbs
of Sydney are also putting pressure on rents, with the combination resulting in improved yields
overall.

Interestingly, Michael Matusik says the latest data on borrowings shows the investor segment made
up 42% of total Australian property buyer numbers in 2012, second only to owner occupiers at 44%.
A recent ASIC survey found the majority of residential property investors are aged in their 20’s, 30’s
or 40’s, with most being married professionals who own at least two properties and live in the same
geographical region as their investments. The study also highlighted another growing segment of
young single investors, who carefully select properties where strong rental returns can comfortably
support most if not all of the mortgage repayments.

Going forward, more official interest rate cuts appear likely, with financial markets pricing in an 18%
chance of an RBA cut of 25 basis points in April and an 88% chance of a cut at some point during the
remainder of this year, according to Credit Suisse data.

Critically, while the signs appear positive for healthy capital growth over the medium to long term
in the Sydney property market, current conditions offer excellent opportunities for healthy rental
returns for investors in the meantime.

We look forward to helping you make good property decisions,

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