Beaten up Banks are a Bargain
The market has been fretting over an imminent property crash in Australia over the past 6 months and the press has been bombarding readers with fear articles. A recent piece about Melbourne off the plan property prices crashing 30% was grossly misleading. It was later discovered that the property under question, 27 Little Collins street, was going to be engulfed by Grogon’s 39 level luxury tower on Spring Street. So to see this particular building fall in price should be no surprise to any property investor as the views from these apartments are soon to be a distant memory.
Yes apartments are cooling in price but it is not the start of a broader collapse.
Our economy is heavily reliant on a strong property market with 70% of Australian's wealth tied up in property due to our cultural love of owning your own home. In addition buying your first home is the most tax effective investment you will ever make as there is no capital gains tax. So the big question you have to ask yourself is, are these doomsdayer’s correct? If the answer is no then our banks are a screaming buy.
Interest rates are now 2%, inflation is 1.7%, unemployment is 5.8% and our economy is growing steadily at 3%. Under this economic situation, if you want a job you will be able to find one, which means you will be able to buy property and service your mortgage which will make the banks happy. This is all the banks need to make healthy profits. The Sydney market does look expensive and could easily take a breather but it is not the end of the world as we are not suffering from over development like other countries.
Another area of support is our weakened currency which has fallen over 30% from its highs. This means for foreigners buying property in Australia it has become that much cheaper. So there is definitely not a bubble in Australian property in $US terms. If you are pricing property in $US then our property market has been flat. The big bears ignore this point!
I am not of the view our property market is going to crash, so no I don’t think it is a good time to sell your bank stocks if you already own them. I believe our mortgage banks are a strong buy and investors will continue to enjoy healthy dividends. If you bought the banks today in your Super Fund you will be rewarded for taking on the risk of owning them rather than depositing your funds in a account with them at 3% if your lucky.
It is a great time to buy bank shares.