Section2 Investor Series #2
A lot has happened to investor sentiment since our last instalment in June.
Hurrah and thanks to the RBNZ for completely changing tack and rewarding us with a cut to the Official Cash Rate in August of 25bps down to 5.25%. The relief that this has bought to households and businesses has been immense, just knowing there is light at the end of what has been a long and dark tunnel.
Despite being a meagre 25 basis points, we’re now all now eagerly awaiting the next RBNZ releases on the October 9th and November 27th. While medium term rates have shifted, the 6 month rate remains well over priced.
I have fixed rate loan expiry’s in late September and my strategy will be to float until at least after the 9th October given the short timeframe between dates. My thoughts, along with the bulk of economists, are that we’ll see further cuts at either or both October and November meetings. We’ll get a better idea on what the plan is for 2025 from the 27th November Monetary Policy Statement.
I’ll be watching wholesale markets closely as a sense check on what has been priced in prior to the November meeting and this will dictate when I’ll fix and for how long. There is emerging value in the 18 to 24 month rates at the moment, if you do the calculation. A great tool to assist with this calculation is this Interest rate comparison tool. Another helpful tool, if you’re stuck on a high fixed rate, is the break calculator tool.
Ideally, we’re all looking for some downside to the floating rate. If you’re like me and have been tolerating your flexi facility floating rate for a couple of years, you’ll be grateful you did with Debt to Income ratio’s being effective from the 1st July restricting portfolio growth.
As an investor, all the shuffling of available facilities and cashflow is in preparation for the next round of buying. I haven’t been a buyer for a few years while I’ve been developing, but find myself casually ‘looking’.
Cashflow has been the hurdle for most investors to overcome. With high interest rates, rates and insurance, its challenging to make a 100% leveraged investment work. You will be subsidising, fullstop.
However, it will be too late to join the buyers party when the numbers do start to work. The competition from first home buyers will be large and fierce.
We usually see a little blip up in the real estate market just prior to Christmas, as Spring starts to fade into Christmas and summer holiday preparation. There are motivated vendors out there, willing to do deals that will settle before Christmas. Get your preapprovals ready, it’s time to go shopping!
