- The official cash rate remains on hold at 4.10%
- The first pause was seen in April this year
- Interest rates were at historic lows during Covid
The Reserve Bank of Australia (RBA) has kept interest rates at 4.10%. While the official cash rate remains at 11 year highs, some in the property industry are seeing light at the end of the tunnel.
Many experts were divided about what today’s outcome would be, with Finder‘s RBA Cash Rate Survey of 39 experts finding a slim 49% minority predicted a rate hold.
Today’s decision by the RBA is the second time rates have been on pause this year.
Rate hold ‘restores confidence in the property market’
Aus Property Professional’s Lloyd Edge said the pause, “does not promise that there will be no more rises on the horizon and the likely impact of today’s decision to hold rates will restore confidence for property buyers and the property markets.”
“Whenever there is uncertainty in the market, that’s when we see many risk adverse buyers exit the market to wait until more certain times.
“But what these buyers don’t realise is, that when there is uncertainty in the market we experience excellent buying opportunities.
“When the confidence in the market is restored, that’s when we see property prices rising.
“Taking this “wait and see” approach often results in these buyers missing out in the market altogether.”
Edge said more properties are coming to market as some Australian mortgage holders are forced to sell and potentially enter the already strained rental market, or look to buy another home in a cheaper area.
“The impact we would likely see from this, is further upward pressure on rents as the demand for rental properties increases, as well as property prices increase in the lower end of the market due to increased demand for cheaper properties. But, the middle to higher end of the market is where we are likely to see prices starting to drop as the properties in these brackets become unaffordable.
“With interest rates on hold, we won’t be seeing a ‘fire sale’ of properties any time soon.”
Lloyd Edge, Aus Property Professionals
This is because Australian banks have strict approval criteria for mortgages that takes into account both predicted and not predicted interest rate hikes, but what we are likely to see is more stock entering the market for sale which will create more choice for buyers and stronger negotiation power.
Could regional centres be the winners?
From an investors perspective, the real winners in the current market conditions are the regional towns like Armidale, NSW and Bundaberg QLD, alongside coastal towns in the Shoalhaven region and Central Coast that offer excellent lifestyle options, schools, hospitals, and job opportunities, said Edge.
“I believe we will see this shift occurring as people start to get priced out of Sydney, or just become ‘fed up’ with Sydney’s unaffordability.
Minimal impact for commercial real estate
Managing director Ray White commercial Western Sydney, Peter Vines, believes the rate hold will have minimal impact on the market.
“Borrowers are already stretched and we believe the full impact of previous rises is likely to appear in the next six months. We believe most investors will be waiting to see several months with no increases prior to getting back into the market.
“However, for those savvy investors there are some opportunities in commercial property where long term ROI is strong and they can take advantage while others are sitting on their hands:
- Block of units: the demand is elevated despite interest rate movements, with more experienced investors still actively pursuing this investment.
- Childcare: with close to 100% occupancy rates, this is a smart long-term investment. Tenants are not signing a two-year lease; they are signing a 10-year lease so for owners there is certainty with income and commercial growth in their investment.
- Industrial: Australians are completing most of their shopping online so warehousing has high demand. Industrial zoned land across Western Sydney in particular off the back of the Western Sydney Airport development can be a golden opportunity in the long term for developers.
Reprieve for commercial property, but not out of the woods yet
Joint managing director for Stamford Capital, Domenic Lo Surdo, said the rate hold, “may offer commercial borrowers some reprieve, but we are yet to see asset valuations impact on financing arrangements.
“We expect that commercial valuations will adjust downwards over the next 12 months.”
Domenic Lo Surdo, Stamford Capital
“While most commercial borrowers may feel minimal impact, valuations are reset at the margin. As valuations adjust and property assets trade into this falling valuation environment, all assets will reset downwards to reflect these changes.
“We expect then that some commercial borrowers will need to deal with breaching both ICR and valuation covenants. Commercial financiers are likely to be less patient with borrowers when both of these covenants are being breached,” added Lo Surdo.
