The outlook for prudent residential property investors is healthy, says Melbourne-based property investment specialists, Wakelin Property Advisory, following yesterday's rate rise announcement by the Reserve Bank of Australia.
“The Reserve Bank’s decision to raise the cash rate by a quarter of one% is a wise one,” says Paul Nugent, a director of Wakelin Property Advisory. “The rise will support long-term sustainability in the residential property market for investors and homebuyers alike, and is an early sign that the marketplace should be able to correct itself without the need for a heavy-handed, interventionist monetary policy.
“For residential property investors, the effects of today’s rise are likely to be minimal. The potential for increased rents over time, together with the tax relief already available, will help to offset this and any future rate rises.
“It is the first homebuyers who are most likely to be affected by today’s increase. Despite the unprecedented low interest rates and long period of access they have had to the First Home Owner’s Grant, rising property prices have kept many on the fringes of affordability. A series of small but decisive rate increases may well see some of them remain in the rental market, and will in turn will slowly contribute towards rebuilding demand for inner suburban rental properties. Current vacancy level rates of 3.7%, down from 4.6% a year ago, are trending back to more normal levels – 3% is considered a balanced rental market – and we expect to see this trend continue. While the rate rise will certainly be disappointing and disadvantageous to some intending first homebuyers, as price growth continues to moderate, affordability levels should improve over time.
“It is interesting to note that the rise has occurred at a time when, traditionally, the residential property market is over-analysed. Commentators should be beware of attributing any current reduction in property clearance rates to today’s rise in rates as lower clearance levels are principally an outcome of higher stock levels and turnover at this time of the year. It will be a few months before we see the direct impact of the rate rise in the market, especially in relation to stock levels and growth patterns.
“Ít is our view that a series of gentle but decisive rate rises will help the market to self-correct, and will underpin strong long-term sustainable growth patterns and gentle cyclical variations.”
