Today's podcast initially started as a regular question and answer session with Ken Raiss where we answer your queries, but it ended up being a discussion on the role of property investors based on a comment made by a friend of Ken’s who said that “property investors are the scum of the earth feeding off poor tenants.”
While I'm sure as somebody interested in property, you'll have your view on this, I think you'll enjoy my chat with Ken today as we initially answer Grant’s question about whether Australia will fall into recession.
Now I know we’ve discussed this before, but the world has changed since then, and then you hear our opinions on whether property investors are the scum of the earth or how they fulfil a critical role in the Australian housing market.
Q: The Reserve Bank is aggressively lifting interest rates as is the Fed in the USA – and there is talk about a recession in the USA. What are your thoughts – will we fall into recession here? --Grant A
- Yes, the RBA has lifted interest rates from super-stimulatory levels to levels that more appropriately reflect the strong state of the economy.
- The Reserve Bank has warned that it is treading a narrow path in its attempts to get inflation back down to the 2-3 per cent target range while, at the same time, keeping the economy on an ‘even keel’.
- And yes, their aggressive moves could lead to recession. But these aggressive monetary policy actions aren’t a reason to be fearful. Hopefully, the central banks will keep on ‘listening’ to the economic data and act accordingly – unfortunately, there is a lag in the data.
A “technical recession” is defined as two consecutive quarters of economic contraction.
There are broadly two aspects.
First, the economy is doing well, and there is no need for the current super-stimulatory (pandemic) rate settings to be maintained. So, interest rates need to be lifted to more ‘normal’ levels.
Second, inflation has risen to multi-decade highs, so interest rates need to rise to slow the pace of economic growth and bring demand (spending) back into line with supply (production).
The second of these factors – interest rate hikes to control inflation – is a global trend.
Essentially this is a by-product of economies re-opening after Covid, with the production response lagging that of spending.
The Reserve Bank is adjusting interest rates in a very aggressive fashion – the most aggressive policy tightening since 1994.
And several other central banks are doing the same.
The concern is that consumer prices have lifted markedly and in a short space of time.
This raises the risk that high rates of inflation could become entrenched, known as consumer ‘inflation psychology’.
Central banks, like Australia’s Reserve Bank, have worked hard over the last decade to keep inflation low and stable.
And that inflation stability has been important in allowing economic expansions to continue.
Ken’s wine club friend claims property investors are taking stock out of the market and preventing first-home buyers from purchasing by driving up prices.
But everyone gets negative gearing no matter what asset they get.
The capital gains discount is available to everyone for every type of asset as well.
The one difference is that property is the highest taxed asset class.
Governments are picking on investors – which will only mean fewer investors and a bigger rental crisis
Links and Resources:
Have a chat with Ken Raiss to ensure you have the correct asset protection strategies in place – click here
In turbulent times like we’re experiencing why not get the team at Metropole on your side to give you holistic property and wealth advice– find out more here
Why not get your bundle of E books and resource is as a is my gift for subscribing to this podcast www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“If consumers and businesses believe inflation is going to remain high, they adjust their wages, they adjust their leases, they adjust selling prices accordingly, and then inflation keeps rising. It’s a spiral.” –Michael Yardney
“If you scare off the investors, even if you deter a small percentage of them, when they sell their property in general what’s going to happen is they’re going to sell to owner-occupiers, and that means it’s going to even further deplete the rental supply at a time when we’re already in a rental crisis.” –Michael Yardney
“Beware of the unintended consequences of a rental freeze.” – Michael Yardney
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