- Monday, 27 February 2012 06:40
Written by Mike Phipps, Phipps Finance
Article Read: 1169
I write this missive from the Flynn's Beach Caravan Park at Port Macquarie.
As some of you who know me well are aware I like staying in caravan park cabins when I'm away from home. It has nothing to do with Swedish backpackers having a propensity to also stay in caravan parks! In truth I tend to travel with a fair bit of gear and frankly, hauling everything into a serviced apartment or hotel room via a lift just for an overnight stay is a pain in the proverbial.
I'm down in this part of the world due to what appears to be a pretty steep increase in buyer demand for motels, caravan parks and management rights. Of course, buyers need debt and I'm more than happy to help in that department. I don't think this recent improvement in demand is limited to the NSW central coast with agents and other industry professionals reporting improved enquiry rates in most areas of Queensland and NSW. Certainly my own enquiry levels in terms of everything from initial finance pre-approval enquiries right through to formal loan applications are at strong levels and the banks appear very willing to approve deals, even those that are not necessarily within normal credit guidelines. Even our good friends over the ditch in NZ are returning to the market.
So, how can this be? According to the mainstream press we continue to be exposed to a variety of foreign economic threats, our own domestic economy is apparently running at two or more speeds, the federal government is in disarray and the banks are refusing to toe the interest rate line. Could it be that buyers and operators have simply decided to stop reading the papers and get on with it? I suspect this is part of it but I also think there's something else at play here.
It's reported that when first time combat troops enter a war zone the experience is almost completely overwhelming. There's incredible noise, violence, pain, fear and every fibre of your being is absorbing sensations that are completely alien and very distressing. No amount of training or war gaming can really prepare for the reality of this situation. Then, something interesting happens. The noise and smells become less confronting and most disturbingly, the bodies and brutality start to become an acceptable part of the situation. Sadly, in the case of war, many return to relive these situations in civilian life.
While I'm certainly not suggesting that what we have here is comparable to a war zone it's interesting how we've gotten used to the situation we find ourselves in. Remember when petrol hit $1 a litre. What a shock, the world was going to end, we'd hit peak oil volumes and the oil producers had us by the throat. Petrol's now around $1.45 a litre and no one really seems to notice or care. We simply got used to the state of play and got on with life. I think that's what's happening with buyer demand in the accommodation sector. This is how things are, let's stop focusing on all the negative press and just get on with it. I know from talking to Kiwi buyers that the exchange rate has been a real mental hurdle for many of them. However, they've pretty much accepted that it's not going to move in their favour any time soon so best to move forward rather than stagnate.
Same goes for interest rates. Money is relatively cheap at present, particularly if you're planning on fixing a home or business rate for the next few years. The federal government and press obsession with the standard variable housing rate is nothing short of bazaar. Truth is borrowers can do much better than this oft quoted rate benchmark and while some lenders have raised some rates outside the RBA cash rate cycle the same lenders have reduced fixed rates and promoted special offer variable rates. Problem is if you make your money publishing bank bashing stories or you are a federal treasurer who fails to grasp bank funding methodology this news doesn't fit the narrative so best to stay with the negative stuff.
While on rates some of you have already been kind enough to point out that I predicted a 0.25% cash rate drop in February and my predication proved wrong. Given this outcome may I suggest that borrowers take a very close look at fixed 2 and 3 year rates while being mindful that once locked in there is no escape without penalty. And remember, in business the rate is immaterial, it's what you do with the money you borrow that counts.
Anyway, I've got a couple of clients hell bent on buying management rights at Byron Bay so I'm off there today.
It's a tough gig but someone's got to do it.