RBA's rates warning + Could this investment be for you?

Hi everyone,

I’m putting the finishing touches on this newsletter while in a camp in the Sahara Desert, after a week of touring Morocco. It has been a wonderful experience and the fulfilment of a lifetime dream of mine to visit this country.

But I’ve been keeping an eye on what has been happening on the financial scene back home, particularly the final Reserve Bank board meeting of the year.

In this newsletter:

• The Reserve Bank is now formally talking about rate rises.

• Investing in commercial property: Is it for you?

• Why funding Christmas with debt is not a good financial strategy.

• Make sure you spend your private health insurance “extras’ by the end of the month.

RBA board now openly discussing interest rate hikes

Tuesday’s Reserve Bank board meeting unanimously decided to keep official interest rates on hold at 3.6 per cent for the third consecutive meeting. However, the board’s messaging now suggests that the next move in interest rates is more likely to be an increase.

At the press conference after the decision, Governor Michele Bullock said the board had talked about what might justify a rate hike in 2026, and added that more cuts aren’t needed.

“I don’t think there are interest rate cuts on the horizon for the foreseeable future,” said Bullock. “I would say at this moment that given what’s happening with underlying momentum in the economy, that it does look like additional cuts are not needed.”

She further explained:

“The private economy is recovering, it’s taking over from public demand … given what’s happening with underlying momentum in the economy, it does look like additional cuts are not needed.

“The question is, is it just an extended hold from here, or is it a possibility of a rate rise? I couldn’t put a probability on those, but I think they’re the two things that the board will be looking closely at coming into the new year.”

Wow, that is pretty plain speaking from an RBA Governor, and that’s what I admire about her. She tells it like it is.

Bullock also said the Monetary Policy Board (that’s the subsection of the board which focuses on rate decisions) will review data in February and beyond, assessing whether financial conditions are “sufficiently tight to keep downward pressure” on inflation.

That basically means if the December quarter CPI figure is again disappointing, then the RBA has to consider whether interest rates are high enough to fight inflation.

She’s putting the possibility of a rate hike in the near future on the table. The formal statement released with the decision noted:

“The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures. Private demand is recovering. Labour market conditions still appear a little tight but further modest easing is expected. The Board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolved.”

The RBA MPB statement also said, "There are uncertainties about the outlook for domestic economic activity and inflation and the extent to which monetary policy remains restrictive.”

Investing in commercial real estate: What you need to know

While I constantly focus on the residential property market in this newsletter, lately I’ve been getting a lot of questions about commercial real estate. With Australia’s tight housing supply, it makes sense that property investors are now looking beyond the glossy residential listings.

So, I chatted with Vanessa Rader, Ray White’s Head of Research, about why commercial property is so appealing - and what we need to know.

What is commercial property?

Think of office buildings, retail spaces, warehouses, industrial facilities, medical centres - basically all the properties in your community that aren’t occupied by people living in them. These are ‘commercial’ assets.

Vanessa says there is plenty to love about investing in property that isn’t residential.

High yields and set and forget

First up, she says commercial assets can offer strong returns with relatively hands-off management.

“Commercial property investment is a good way to diversify your property portfolio. Assets often provide higher yielding offerings .. for many assets, they are considered "set and forget" with long lease terms, and all outgoings paid,” she explains.

That long-term stability - where costs like rates, management, and insurance are covered by the tenants – can make commercial property pretty appealing.

“For investors willing to move up the risk curve, these can be lucrative investments,” adds Vanessa.

It’s also important to note that commercial property investing can be somewhat an “analytical” type of investment - meaning your decisions hinge on the wider economy, demand and new supply, as well as other factors like government regulation.

“You need to consider the actual asset and the broader market fundamentals of that asset class,” Vanessa says.

So beyond assessing whether potential tenants can pay the rent each month, you also need to consider if your tenant is likely to stay in business if there is an economic downturn. Or whether the local community needs another pizza shop or dental practice?

That said, for those who enjoy doing their research and tap into good advice, commercial property can be profitable.

So why isn’t everyone doing it?

A lot of investors never even look at commercial property, though.

I asked Vanessa why, and she believes this largely comes down to familiarity.

“Traditionally property investors have favoured residential. It’s more familiar as people live in a home or unit,” she explains. “Unless you occupy commercial property or have exposure to it, many investors do not even consider this an option.”

With all the property types, price points, and tricky financing, commercial real estate can also feel pretty overwhelming.

But if you’re willing to learn the ins and outs, and get a little help if needed, it’s a great way to earn passive income.

Commercial real estate as a retirement strategy

When transitioning out of the workforce or business, most money-minded people want to establish an alternate income stream.

While commercial rent can be just that, Vanessa has a big tip when looking to buy a property:

“Seek out assets with long term leases. While most commercial properties offer long leases, those assets with secure cash flows with a strong lease covenant would be the best way to secure an income stream in retirement.”

Vanessa acknowledges these lower-risk investments generally come with lower yields, but they compensate with stability… The rent comes in regularly.

Safe vs volatile

With commercial property, you can play it safe or take risks and chase the bigger yields. It really all comes down to your risk profile, the market, your tenants, and the kind of property you’re buying.

“At the moment, assets such as industrial which have low vacancy rates, rental growth potential and limited new supply potential, are considered safer,” Vanessa shares.

On the other end of the spectrum, office assets remain more volatile, with higher vacancies and limited rental growth.

Then there are the ‘specialised’ properties.

“Assets like childcare centres, where income is somewhat tied to government subsidies can also be considered safe, however local market dynamics and new supply can impact specific assets,” she says.

Whether you prefer safety or volatility, doing your research and homework is absolutely essential.

How to get started

Investing in commercial property isn’t just about clicking the ‘commercial’ tab on property listing sites.

Before you dive in, Vanessa suggests you:

• Study the market - “Research is very important,” she states, pointing out economic conditions, local market demand and fluctuations must all be considered.

• Speak to lenders early - Financing commercial property is trickier than residential, with different rules for each asset and location, so Vanessa says getting a lender involved early is smart.

• Get expert help - Chat to those in the know - friends who have invested in commercial, your financial planner, or engage a commercial property buyer to help find the right property for you.

• Find a good property manager - Once the property’s yours, a skilled property manager is key. Commercial leases and tenant issues can be complicated - “You need an expert to help navigate this,” says Vanessa.

A marathon, not a sprint

I wholeheartedly agree with Vanessa when she describes commercial investing as a long-term investment play.

“Looking for quick wins can be dangerous in this market,” she says.

It’s smart advice. When it comes to building wealth, I always say slow and steady wins the race.

But if you stay calm and cautious and do your research, commercial real estate is worth considering.

Funding Christmas with debt is not a good financial strategy

A staggering 41 per cent of Australians would consider going into debt to fund their Christmas and summer holiday spending, according to a survey from Compare the Market (CTM).

What’s more, nearly half of those surveyed said they plan to pay for Christmas using credit cards, personal loans and Buy Now, Pay Later Services.

It comes as the average Australian is set to fork out $828.01 this year on presents, decorations, food and all the Christmas trimmings. Some states are expected to spend even more, with the average spend in Victoria and New South Wales skyrocketing compared to other areas.

The CTM research also revealed that while the majority of people surveyed (53.78 per cent) said they would make purchases using cash or money from their savings account, 32.31 per cent said they would use a credit card, 7.8 per cent would be using Buy Now, Pay Later services, while just 0.73 per cent said they would take out a personal loan to fund the festive season.

I reckon you should really think twice before putting Christmas on credit. It’s an expensive time of year, but the last thing we want to see is people racking up hundreds of dollars of debt and starting 2026 in the red.

It can feel so easy to buy all the presents using Buy Now, Pay Later or pop the Christmas feast on a credit card, but it doesn’t take long for those transactions to spiral into long-term debt if you’re not on top of what you’re signing up for. If you miss a payment or can’t get your head around interest on credit cards, your dream Christmas could quickly turn into a nightmare that you’re paying off for years to come.

For example, analysis by CTM found that financing a $828 Christmas credit card spend with a 20 per cent interest rate would take five years and 11 months to pay off, and cost you $1,417 in total, assuming you only made minimum repayments.

This is why you have to be so careful if you’re going down the credit card route this Christmas. In this example, a quick tap of your credit card could end up costing you $589 and take nearly six years to pay back.

That’s a big financial commitment for just one day.

Instead, I’d be looking at other ways to claw back cash:

• Are you on the most competitive offer with your electricity retailer?

• Could you save more by switching to a cheaper insurance provider?

• How much extra can you pocket by switching from big brands to generic names at the supermarket?

I’ve seen first-hand how these little switches throughout the year can save families all over the country significantly, so that’s my challenge to Aussies before they reach for the credit card this Christmas.

Oh, and don’t fall into the psychological trap of Buy Now, Pay Later services. It can be so tempting to rely on Buy Now, Pay Later services for Christmas purchases, but it doesn’t take long for those payments to snowball - especially if you’re a sucker for a sale sign or go a little mad in the shops at this time of year.

Combine all those Buy Now, Pay Later costs with things like your summer energy bill, back-to-school costs and the everyday expenses we all face, and you could find yourself struggling to keep afloat in the New Year.

Here are some ideas for reining things in:

Top festive budgeting tips

• Lock in your festive budget early and stick to it - Don’t let Christmas creep up on your wallet. Write down everything, including gifts, food and travel and set a realistic limit. If you can’t pay it off straight away, it’s likely too much. A clear plan now means no nasty surprises in January.

• Rethink what makes a great gift - Big price tags don’t equal big smiles. Homemade treats, personalised experiences or even a thoughtful letter can mean more than the latest gadget. Creativity beats credit every time.

• Beat the last-minute panic - Impulse buys are budget killers. Start shopping early to grab deals and avoid the pressure of Christmas Eve splurges. Planning ahead means more savings and less stress.

• Compare and conquer - Before you splurge, look for savings elsewhere. Switching energy retailers, insurance providers or even assessing your home loan rate could free up hundreds for your festive budget. A few minutes comparing deals can make a big difference.

Don’t forget to claim your “extras” before year end

Millions of Australians risk throwing hundreds of dollars down the drain unless they utilise the benefits of their extras health insurance policies by 31 December.

Extras policies typically cover services like dental, optical, physiotherapy, chiropractic and more, but many of the nation’s top health insurers reset these benefit limits each year on 1 January.

Unless you claim some, or all, of the benefits you’ve paid for and are entitled to, you could be throwing money away.

Major health funds like AIA, Australian Unity, Bupa, Frank, GMHBA, HCF, HIF, NIB, Qantas, See-U and Westfund are among the funds that reset on 1 January every year.

And it’s not just loose change. Compare the Market says one basic policy, for example, offers up to $2,700 in annual extras benefits - then they disappear and reset unless you claim them by 31 December.

Higher levels of cover may have even bigger benefits. Australians need to squeeze every last drop from the policies we’re paying for. We’re still very much in a cost-of-living crisis so if you’re one of the 13.7 million Australians paying for an extras policy and you’re not utilising every last benefit you’re paying for, you’re a mug.

If you’ve been putting off that dental check-up or physio appointment, now’s the time to act so your hard-earned money doesn’t go to waste.

Check in with your health fund, as you could have hundreds of dollars left to use on services like teeth cleaning, remedial massage, acupuncture, prescription glasses or even a gym membership. If I had the choice between getting a new pair of glasses before the end of the year or lining the pockets of health insurers, I know what I’d pick.

The key is booking in your appointment early, as a lot of clinics alter their opening hours over the Christmas and New Year period.

It’s also best to check your policy brochure for how your fund defines ‘annual’, as it may be based on:

• The calendar year between 1 January and 31 December.

• The financial year between 1 July and 30 June.

• A membership year, which resets annually on the 12-month anniversary of when the policy was purchased.

• A rolling year, which resets 12 months from when the last benefit was claimed.

Every extras policy comes with limits on how much you can claim annually for different treatments. At the crux of it, your claimable amount varies based on the type of service you have and the cap your health fund sets. Some funds reimburse a percentage of the cost of a treatment, others offer a fixed dollar amount per service every year and some even cover the entire amount up to an agreed limit annually.

And, if you’re getting to the end of the year and finding you haven’t claimed as much as you thought you would, it could be time to reassess your extras policy. You wouldn’t order a large meal at your favourite takeaway outlet if you’re not feeling that hungry, so why over-order on your extras? It’s wasted money.

If you’re struggling to use some or all the benefits you’re entitled to and paying for, see if you can move to a lower level of coverage that gives you access to the services you actually want to use, with a smaller price tag.

Compare the Market’s 2025 Household Budget Barometer found that 30 per cent of Australians have skipped dental appointments in the past 12 months, while 17 per cent of people surveyed have cancelled or delayed routine health appointments, such as hearing tests, optometrist visits and even cancer tests. These are things that many extras policies cover, so if you’re paying for it and you haven’t utilised the services, there’s really no excuse.

Top tips for finding the right extras policy for you

• Is there anything you can ditch to save on costs? - Have a think about the services you’re actually using and if there’s anything you could do without. A basic policy may suit things like general check-ups or physio sessions, but you may need something more comprehensive if you’re looking at major dental, psychology or non-PBS meds. Check your policy’s brochure to understand what’s covered.

• Waiting periods may still apply - Don’t assume you’ll be able to claim right away, as waiting periods may still apply for extras. The good news is that health insurers will recognise any waiting periods you’ve already served, so don’t let that fear deter you from switching if you find a cheaper or more suitable policy elsewhere.

• One size doesn’t fit all when it comes to extras - If you’ve got a family or couple’s policy, remember that limits might apply to the whole policy—not each person. That means you could hit your cap faster than expected if multiple people are claiming.

Merry Christmas

This will be the last newsletter for the year but it will return mid January. In the meantime, Libby and I wish you all a very Merry Christmas and hope it brings you great joy.

Grandchild #10 is expected next week, which will be our very precious Christmas present.