How to Live with a Labor Government!

Will things really change all that much, now that Australia has wall-to-wall Labor governments across the country?

You’d better believe it!

Jason Koutsoukis summed it up well in The Age yesterday …

“Rudd should enjoy the moment while it lasts. The moment he makes his first decision, he will also make his first enemy.”

The Reserve Bank (RBA) is expected to increase rates again in February 2008 — which was already in the pipeline. And the May Budget has effectively been framed by both Parties, through a series of similar tax cuts.

However, the Unions will now see this as payback time … given the millions of dollars they poured into having Rudd elected. And their platform being: The dismantling of Work Choices.

The RBA is holding a very close watch on any potential wage breakout. And when it moves to quash that inevitable breakout … it will do so by increasing interest rates quickly and dramatically.

Interest RatesWhile rates won’t reach the 18% level they did in the late 1980s — they won’t need to.

Given that Australian families borrow about eight times more now (than back then), the impact of mortgage rates reaching between 10% and 11% per annum could be quite devastating.

As Terry McCrann concluded in yesterday’s Herald Sun …

“The great irony of this election could turn out to be that in voting to abolish Work Choices and punish John Howard for not keeping interest rates low, voters could end with much higher rates and losing their job.”

So, how will this effect Commercial Property?

For the first half of 2008, probably not a great amount.

But with Brisbane and Perth desperate for new Office space … the unions will see that as a wonderful opportunity to exercise some muscle, as developers embark upon a number of large speculative developments.

Fortunately, Melbourne and Sydney started their construction phase about seven years ago. And they did this mainly with large pre-commitments; as well as enjoying a very stable cost climate for building.

Nonetheless, rising interest rates will have some adverse effect on these markets as well.

Only last week, two clients (who are looking to sell their Commercial investment properties) sought my advice as to the best timing. And, in both cases, the properties have about 5 years to run on leases with quality tenants.

One property is located in Brisbane; the other in Melbourne. However, my advice to each client was the same: You ought to look to put early in 2008.

And my reasoning was that the properties …

* Have seen their greatest growth in the past 3 years;
* Will only level out (or diminish) in value, as interest rates rise; and
* They have their leases expiring at what will probably be the worst timing for the economy.

But, more particularly … the current market is “starved” of quality, well-let Commercial property.

Looking to the Future

Therefore, the ideal way to make sure you “bank” the capital growth that is rightfully yours … would be to sell during the first half of 2008 — even if your settlement occurs later in the year.

That way, you’ll be cashed-up. And you can stand ready to “snare a bargain” — as interest rates squeeze the heat out of the present market … ready for you to ride the next cycle.

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