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Are We Really Getting Riskier With Our Property Investments?

debt trapLow interest rate is a temptation anyone can submit to but should it carry you away to such an extent where you leave behind all your wisdom regarding property investments? What if the interest rates suddenly increase and properties you locked now became a huge mortgage burden on a later day? In a time when people are falling for risky investment strategies, an article on The Advisor talks about erring on the side of caution.

Focus shifting from savings to borrowings

RBA feels that people are taking more risks than is due and are completely shifting focus from savings to borrowings. It is not a bad idea in itself but such a shift should happen keeping the economic fundamentals in mind and not based on a temporary condition like low interest rate.

High household debt is already a concern

Household debt and gearing are already a couple of concerns for the government . In such a scenario, a wise mix of savings and borrowings will hold the citizens in good stead.

Work out your debt diligently

It is important for investors to evaluate what they can gladly pay in the long run irrespective of a sudden hike in interest rates. Also, they should work out half-hidden costs like Stamp Duty, General Sales Tax, Establishment and Conveyancing fee and so on before making investments.

You can read the original article here.

The paradigm shift was always going to come

I feel that perception and truth often work on a different plane. We are GFC-rattled people and hence savings has become our first nature. Even in an environment of low interest rates, we are not too easily persuadable when it comes to borrowing.

If this ideology is changing, it does not have to do with low interest rates because the rates have not been able to fuel consumer sentiment for long. I think people are beginning to take more risks simply because they are finding Australian real estate sticking to the fundamentals long enough.

They feel that the property market has everything going for it and not without any reason is there a mad rush of property investments by overseas investors.  I think the penchant they have developed for risks may just have come to them at the right time.

Why is there a rise in consumer sentiment in your opinion?