THE latest interest rate cut to the historical low levels of 2.75% will have an enormous impact on both the property market and retail trade.
“The drop to 2.75% will be an enormous boost to both existing home owners and people currently in the marketplace looking for a home,” Australian Property Institute president Justine Jacono said.
“It will certainly help the new home market and give a boost to retail sales.
“This could prove to be the stimulus the housing and construction industries have needed for sometime,” Jacono said.
According to the Australian Bureau of Statistics’ House Price Indexes, the weighted average of the eight capital cities rose 0.1% in the March quarter 2013. The capital city indexes rose in Perth (+1.2%), Melbourne (+0.2%), Darwin (+1.9%) and Canberra (+0.2%) and fell in Brisbane (-0.3%), Adelaide (-0.1%) and Hobart (-0.3%). Sydney showed no movement for the quarter.
Over the year, the weighted average of the eight capital cities rose 2.6%. Annually, house prices rose in Darwin (+8.0%), Perth (+6.1%), Sydney (+3.6%), Canberra (+1.5%), Brisbane (+1.4%), Melbourne (+1.1%) and Adelaide (+0.9%) and fell in Hobart (-1.9%).
BIS Shrapnel’s associate director Dr Kim Hawtrey said despite successive drops the cash rate before yesterday, interest rates so far have not yet provided the same boost to housing activity that has been experienced in previous easing cycles.
“To date, households have demonstrated that they are not as willing to take on new debt to enter the property market as they have been in the past. This may reflect households becoming more risk averse.
“This is clearly of concern to policymakers, and with recent data implying only a gradual upturn to building and construction at best, the RBA decided it needed to act.
“It is imperative for the nation that we see the upturn in building coming through. Otherwise, with population growth on the up, the national dwelling stock deficiency is set to rise further. And there will be little to take the place of the cooling mining boom.” Dr Hawtrey concluded.
Aviate Group managing director Neil Smoli said the historical lows levels should resonate with property investors.
“We firmly believe the current stage of the market cycle is the time when significant potential upside is available to investors who have the job security and the means to invest in a carefully selected residential property in certain locations,” he added
Colliers International research director Mark Courtney said the property market will benefit only the rate cut is fully passed on by the banks.
So far the National Australia, ING Direct, Westpac, Commonwealth Bank and Bank of Queensland announced they will pass on the rate cut in full.
“We’re at the point now where housing finance figures are well up from the lows of 2010, but they are still below the five-year average. What we really need is sustained capital growth in the residential market,” Courtney said.
“Everyone was banking on the housing construction picking up the slack as we pass thought the resources investment peak this year but there is a real risk that this is not going to happen so they are now pulling the biggest lever they have left which is cutting rates,” LJ Hooker deputy chairman L Janusz Hooker said.
CBRE Australia head of research Stephen McNabb said whilst all eyes have been fixed on the strength of mining and related investment in recent years, the peak in the level of resources sector investment is expected to occur this year.
“There are some encouraging signs emerging to support growth in real estate in the medium term originating from the broader economy.
“The RBA acknowledged a strengthening in consumption and a modest firming in dwelling investment, and prospects for some increase in business investment outside the resources sector over the next year. This would help to offset the anticipated slowing in mining investment and support a broader base of growth for occupier markets.
“Interest rate reductions which commenced 18 months ago, will continue to support that improvement and may help to close the gap between subdued occupier markets and stronger investor preference for higher return assets including property and equities. However, while growth risk persists we expect that prime assets will continue to outperform secondary assets.” McNabb concluded.
Property Review
