Is the Cashless economy a win for you?
Why Australia's 'Cashless Economy' could create a Property Boom!
Over the past few years, thousands of Swedes have had a biometric microchip implanted into their hands, so they don't have to carry key cards, personal ID or even train tickets. When considering if leading global economies, including Australia, will soon become 'cashless' seems to be more of a question of not 'if' but 'when'.
I remember thinking how careless it seemed when I first heard that credit cards were going to include a microchip allowing the now common 'tap and go' function. I imagined how easy it would be for cards to be stolen and thieves to run around town tapping up a storm at someone else's expense. Today, like most other Australians, I tap cards (and my phone) every day without a second thought. Thousands of ATM's have been removed over the past 12 months alone, along with the closure of hundreds of Bank branches across Australia, adding further evidence to the fact that a cashless economy could come sooner than most expect, catching millions of Australians by surprise. Some extreme forecasts even suggest that cash (bank notes and coins) will soon have 'use by dates' applied to allow the gradual removal of physical cash from our economy.
New law to ban large cash payments
A new law is expected to soon be passed in the Senate that prohibits cash payments of $10,000 or more. This Bill has been aimed at preventing large cash transactions making it harder for money laundering and the financing of terrorism, which is obviously an idea very few are expected to oppose. What we are not considering is the adjustment of boundaries around our ability to both save and spend cash. Cash stored in a bank account gives very little financial benefit due to low interest rates, and cash is getting increasingly harder to spend.
Negative interest rates could be next
Australia hasn't seen a recession since 1991 but given the impact of the Coronavirus a recession now looks inevitable. Whilst stimulus packages will form the first round of initiatives to boost our economy, a further reduction to interest rates will also be an option. Whilst my initial research suggests that negative interest rates are unlikely, the RBA has already signalled it's ready to cut rates further and the money markets are pricing a likely cut once again in April. What most people have not considered is that if interest rates do go into negative territory cash deposits could require the investor to pay the bank to store their savings. Yes, that's right, you could need to pay the banks to hold your cash.
Why investors will turn to property
When you put these possibilities together, negative interest rates, the inability to spend large amounts of cash, the cost to hold savings in a bank account, along with the volatility of the global markets, investors will soon be faced with one obvious question, "where do we store our savings?". Obviously not everyone will have the ability to buy property but a huge number of Australians, particularly our 5 million plus Baby Boomers who control more than 50% of our national wealth, could see a long term 'buy and hold' strategy as being their safest alternative. In this situation, interest rates on property mortgages would be incredibly low, making undersupplied property markets offering strong cash flow (returns above 4.5%) very attractive.
At a bare minimum it certainly looks likely that low interest rates (or even zero interest) are here to stay for a number of years making it incredibly painful for investors to sit on cash reserves, but very comfortable for property investors. And given the recent bloodbath experienced by the share markets it's safe to expect once again most Australian investors will turn to 'bricks and mortar' as their preferred investment choice.
The BIG WEALTH SHIFT report
If you haven't already downloaded my latest National BIG WEALTH SHIFT Report, here's the link.
This Report outlines the biggest single movement of wealth we have ever witnessed in Australia, and how property investors can profit.
SEQ Big Shift Report
- OUT SOON!
Keep an eye out for my upcoming SEQ Big Shift report where I'll break down a number of key elements that are creating a 'perfect storm' for informed property investors in certain postcodes within the emerging hot spot for property investors.