OPINION: THE most recent interest rate cut of 0.25 basis points by the Reserve Bank is more than welcome by mortgage holders, but it needs to be followed up with another cut, and soon.
It should be noted that a further cut could have a double jeopardy impact for Australia’s residential property market. The May rate drop by the RBA to enact historically low interest rates was for one intention – to stimulate the economy.
There is little doubt it will have a positive impact on the housing and associated sectors; and hopefully stimulate the economy and submarkets within Australia. While there is little evidence as yet, the latest rate drop may have an upward impact upon property values and as a result place greater pressure on the affordability of a property for low-income families and first-home owners.
While many believe the property market is overheated and statements such as, “it is likely that the ‘Bubble’ will burst soon” are common, we believe it a fundamental misread of the market and its issues, and that these statements are overly simplistic.
Let me make it clear, we don’t see a bubble in the Australian property market.
When discussing the Australian property market the reality is that we really need to set aside Sydney from our discussions. Sydney is in reality a global city and is in line with markets such as New York, London, Tokyo and Hong Kong, however, whenever we discuss the Australian market we all talk about the impact Sydney is having this really skews our impressions of the market here in Australia.
The Sydney market should be seen and compared to the likes of those true mega global cities, rather than that of Melbourne, Brisbane and other Australian markets.
It’s true the Melbourne market has grown substantially over the past decade, however, you only have to look at median values in Australia to realise the importance of the health of the Sydney property market in relation to Australia’s economic prosperity.
Sydney’s median house price at March this year sits at $730,000 compared to the next highest median Melbourne at $560,000.
When we look at the rest of Australia the property market is clearly strong, but very inconsistent between markets. The Australia property market is made up of a diverse range of property types, or market segments, with geographic markets made up of numerous submarkets. It can be very different with areas doing very well and another adjacent area struggling to hold value. We need to support the market and another interest rate cut may well make the difference.
By Mike Zissler, CEO, Australian Property Institute.*
