Is There a Credit Squeeze Looming?

WILL COMMERCIAL property investors and businesses be starved of ready funds during 2012?

The banks seemed to be protesting about the increased cost of offshore borrowing. And using that as their excuse for not wanting to pass on any future RBA rate reductions in full.

But are they really telling you the whole truth?

In an article late last year, I explained to you how …

Since 2008, the Banks have reduced their dependence upon offshore funding by a third — now providing only 20% of their funding needs. In turn, they have raised (from 40% to 50%) their contribution from domestic deposits.

As such, their overall exposure to the European crisis has been significantly reduced. But what if things were to get worse? How would it look then?

During the early stages of the GFC, the Australian dollar fell as commodity prices collapsed.

But our dollar has now proven itself to be a safe haven — with foreign governments eagerly buying Australian 10-year bonds. This has driven yields down from 5.5% per annum early last year … to where they currently sit, at around 3.8% per annum.

Unlike most Western countries, Australia still enjoys an envied AAA credit rating. And the Gillard government wants to ensure banking stability, along with a steady flow of funds throughout the system.

Therefore, if global conditions were to worsened, or there was any suggestion of a funding shortage frustrating the banks … the government would undoubtedly extend its guarantee facility to them — as it did during the GFC.

That would have a twofold benefit:

1. The Banks would then be able to borrow cheaply, backed by the AAA rating of the Australian government.
2. Plus any reduction in the cash rate by the RBA would immediately be passed on in full — given that the tax payers would effectively underwrite the Banks’ well-being.

Bottom Line: Because of Australia’s rather unique economic position, it is well placed not only to survive any further global upheaval … but actually emerge stronger, as a result of it.

Therefore, as a Commercial property investor, you need to grasp this window of opportunity AND secure some well-let property now … ready to ride the underlying growth wave, over the next 5 to 6 years.