With the Reserve Bank of Australia cutting rates, the official Cash Rate in Australia is just 3.25%. The mortgage rates have dropped to just a little over 5% for investors who are on standard variable rates.

Investors are looking to lock in their rates once the official Cash Rate drops below 3%. I see a perfect opportunity to acquire residential properties in Australia with positive cashflow at least for the next 5 years, provided you have loans that are disbursed between now and 2010. The rental yield for residential properties is about 5% and with mortgage rates falling below 5% or even 4%, rental income will be more than the outgoings, thus increasing your cashflow. Besides with the AUDSGD at below 1.0000, there hasn’t been a much better time to acquire residential properties in Australia.There’s a small window of opportunity. However there are risks involved. Here are some of the reasons why you SHOULD NOT look into acquiring properties NOW:
1.    You don’t have instant equity now.
The best approach now is get into House/Land that can be built between 6-9 months. Loans will be disbursed at the time when Cash Rate is low; hence fixing your interest rate for the next 5 years means positive cashflow for you.

2.    You are highly suspicious that prices of properties in Australia will drop. House/Land packages are basic housing required in Australia. If you acquire a House/Land in the region of $320,000-$350,000, that’s pretty close to replacement cost. The risk of prices sliding further is minimal.

3.    You are worried if banks will ask you for ‘margin calls’ if property prices dip.
Singaporeans can relate to prices of properties dropping 20% and banks asking owners to ‘top up’. In Australia, banks don’t practice that. As long as you keep up with your interest repayments, banks don’t do margin calls for property investors.

According the Australian Bureau of Statistics, Melbourne is growing at a rate of 1000 people per week and developers are just not building enough houses to accommodation the growing population. The recent bushfire in regional Victoria further deepen the need to increase the supply of accommodation for residents in Victoria.  In the current credit environment, financing for big projects can be a challenge for developers and we have already seen developments stall because of lack of financing.

House/Land packages may be a good option for investors to get into the market quickly. Like Warren Buffet says, ‘Be fearful when others are greedy and be greedy when others are fearful’. I see more upside rewards than downside risks in the current market.