The Loewy Blog Edition 4 |
As we close for the holidays after a challenging year for clients all round. Here is our year end gaze through the crystal ball and update.
Real Estate
The Sydney real estate markets most recent auction sale data.
1. There were 11% more properties on the market than last year
2. Clearance rates at 50.1%.
In our view the difficult outlook for houses and units over $2,000,000 should continue in the short term and next year, this area of the market will prove difficult to clear stock thereon and prices in our view will move sideways or continue to drop. For units up to say 700-750K in the right locations should continue to maintain their value as renters and investors look for alternatives to the stock market and renting. And with residential yield now approaching 4% and in some areas say 5%. The differential on yields between residential property and term deposits is at about .5 to 1% and dropping.
Interest Rate Outlook
Fundamentals given the recession in Europe and a difficult economy in the USA would normally see an environment with a drop in interest rates appearing likely.
The wild card will be a credit/liquidity style crisis which may have the impact of shrinking bank balance sheets and hence loans stemming from Europe and then contaminating the rest of the market.
I don’t think the reduction in loan interest rates is assured unless the credit and European Sovereign crisis passes and has a passive and soft landing. If so, we will see a reduction in interest rates thereon.
Our advice is to renew credit lines for longer terms – say around 5 years, go to softer lenders, avoid facilities with annual reviews for valuation etc.
As to rates have a sensible mix between fixed and variable facility thereon. Current 2 and 3 year fixed rates are around 6.2% to 6.3% and represent good long term interest rates over the interest rate historic curve.
Term Deposits – Rates
In our view term deposit rates will continue to drop as Banks are awash with cash and large corporates undertake corporate bond issues that may not require banking or institutional support.
Watch for value bond note floats like the Woolies notes currently at around 7.75% interest rate (i.e. a margin of 3.5% above swap rate). On the original face value of $100 represented an opportunity thereon. We note these floating rate notes are now listed at a premium of 4.0% on face value thereon and proves the market likes these types of quality issues.
Share Market
Whilst we consider that shares are needed in your asset allocation, given the economic problems of the world i.e. Europe and America and the predicated slow down in China we think the market will continue to bounce between 3700-4400 All Ords values over the next 6-12 months. There continues to be a stampede to get into cash and out of the stock market.
Buying Internet names
As of January 2012, you can purchase your own international www domain name with the expensive? help of Melbourne IT etc. We don’t know how much it costs, no doubt the big names will be expensive and an auction process where more than one entity wants a name or brand. The effect of "Dotcom goes dotcompany": Domain names this week are being opened up to company names and brands. The .com and .net suffixes known as generic top-level domains, can be replaced by whatever the client wants. There will no doubt be cyber squatters buying up to extort. If more than 1 entity with fair claims to a domain name applies a bidding process begins. Companies have 3 months to apply, after which an 8 month evaluation process begins with the first address to become active in 2013. Some view it as an opportunity to have your branding exposed to higher visibility online. National Australia Bank have done considerable research (see NAB.com.au) We suspect the price will be challenging!
Tom Loewy
Disclaimer – The material contained in this newsletter does not constitute advice. DPL & Co Pty Ltd is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.
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