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Monday, 13 October 2014 00:00

Construction to Boost Economic Growth & Investor Returns

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Low rates are essential for the rebalancing of the Australian economy and to encourage dwelling construction to support population growth but lenders have not necessarily participated to the extent that they could or the RBA would like to see – graph below. The RBA has signaled persistent low rates and construction lending represents an opportunity for smart investors seeking higher returns.

Luci Ellis of the RBA said recently, “Part of the anticipated effect of monetary policy is to induce more construction activity. Higher prices are the incentive to get that expansion, which is indeed happening. But it is worth noting that the vast bulk of that new borrowing is to purchase existing properties.” [1]

Luci Ellis noted, “At least some of the growth in housing prices since the middle of last year was a bit of a catch-up from a period of weakness. Some increase in prices was to be expected given the current level of interest rates. And housing prices are still within the same range, relative to incomes, that we have seen over the past decade, albeit towards the top of that range

The RBA also notes that some specific locations within cities might be at risk An experienced selective fund manager is essential to assist investors in the selection of suitable construction loans and their management in the quest to generate a fair regular income while Australia’s interest rates are suppressed at low levels. First mortgage construction loans with conservative loan to value ratios are essential for capital stability when property prices fluctuate. Of course, the loan to value ratio must be verified with an independent valuation. Credit Connect’s focus is on selectivity, investors pick only the commercial loans they like and each loan is secured by a registered first mortgage.



[1] Luci Ellis, Head of Financial Stability Department, Reserve Bank of Australia, Speech Sydney. 9 October 2014, http://www.rba.gov.au/speeches/2014/sp-so-091014.html

Last modified on Tuesday, 14 October 2014 14:56

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