Official Cash Rate drop is good news for investors

Official Cash Rate drop is good news for investors
By Scott Bentley

Official Cash Rate drop is good news for investors

The time is right for property investors to investigate increasing opportunities, taking advantage of the recent surprise Official Cash Rate cut.

Not only does it present excellent opportunities to buy for good long-term yield investments, predictions are that there will be further cuts this month, with some commentators going so far as to forecast two more cuts this year.

Dropping to 1 percent OCR is unprecedented, as the Reserve Bank seeks to boost flagging business investment as well as increase opportunities for people to buy into property. Inflation is below 2 percent, and while employment figures are positive, the GDP growth has slowed.

The Bank has also taken into account the international scene, with Brexit, the US – China trade war and other international pressures.

“Global economic activity continues to weaken, easing demand for New Zealand’s goods and services,” the Reserve Bank said.

“Heightened uncertainty and declining international trade have contributed to lower trading-partner growth. Central banks are easing monetary policy to support their economies. Global long-term interest rates have declined to historically low levels, consistent with low expected inflation and growth rates into the future.

“In New Zealand, low interest rates and increased government spending will support a pick-up in demand over the coming year. Business investment is expected to rise given low interest rates and some ongoing capacity constraints. Increased construction activity also contributes to the pick-up in demand.”

Whether the Reserve Bank’s actions will have the desired effect is open to question, according to some. ASB chief economist Nick Tuffley says global prospects are for the slowest growth since the Global Financial Crisis.

Mr Tuffley says the combination of domestic and global uncertainties mean businesses are wary of putting their hands in their pockets.

"Capital spending is soggy outside of anything involving construction, but trading conditions are simply not as bad as surveys suggest. Businesses need to focus on the key levers of their performance that they can control. The challenge is that we need more investment to improve our becalmed productivity, and deliver the strong economic and wage growth that is key to long-term prosperity," says Mr Tuffley.

But, on a more positive note, Mr Tuffley says recent declines in mortgage rates are likely to stimulate the housing market in coming months.

So what does this mean for you as an investor?

"That it’s time to consider either starting or increasing your property portfolio to gain better yields," says Owen Norrish, company director and principal officer First National Marlborough.
"There are still more buyers than sellers in the market, and vendors are likely to be pushing for higher prices in view of the lower available interest rates. And keeping in mind the likelihood of further interest rates cuts, do come and talk with us here at First National Marlborough about what opportunities are coming up to make the most of this property climate."