Last week’s Brexit decision resulted in immediate turmoil across global financial markets. Trillions of dollars have been wiped from global equity values. The ASX fell by almost 4 per cent the day the result came in. The British pound plummeted to its lowest point against the US dollar since 1985.
In the meantime, its business as usual for property investors, at least for now!
Property is unlike any other asset as it cannot be traded quickly. Real estate is not (and will never be) as volatile or as liquid as equity, currency or commodity markets. It takes weeks (sometimes months) to sell a property and complete the sale transaction in full.
If there’s any volatility for our property market, it’s more likely to be caused by politics. The Federal election is just days away and it will be interesting to see which party wins the toss. If Labor is elected, we may see some change in attitude towards property investments given that properties purchased from 1 July 2017 won’t be entitled to claim negative gearing for established properties, and the CGT discount will reduce from 50% to 25%.
If Liberal remains in power, then it’s status quo!
The recent Brexit decision is proof again that equity markets can be erratic and just like a Tiger, it can turn on you without notice at any time. Your home or investment property on the other hand has a proven track record of consistency and minimal volatility.
For Australian investors, the impact of the Brexit decision will mainly impact financial markets and have little (or no) impact on property, at least not in the short-term!
The Brexit decision may force the RBA’s hand to cut interest rates again, particularly if banks increase their mortgage rates out of cycle due to higher funding costs flowing from an increase in lender caution. We experienced this exact same issue in 2008 during the Global Financial Crisis (GFC).
The GFC came and gone, and property in cities such as Melbourne and Sydney have achieved massive growth. In some suburbs we’ve seen growth as much as 100% in just 8 years!! History is no guarantee of future performance, but I think you can see where I’m coming from.
I expect the RBA to sit on the fence for the time being to judge what volatility will play out. Increased uncertainty is likely to put pressure on the RBA to cut rates again if there’s any evidence that consumer and business confidence will be adversely impacted.
Interesting times ahead..!!
My advice. Don’t panic just because everyone else is. I’ve said it many times before, property is a long-term game and if you’re in it for short-term fame, then you’re playing with fire. Issues do pop up, but ‘time’ fixes everything.
Stay focused and reach out if we can assist you with any strategic advice to ensure your longer-term financial and wealth goals remain on track.