Month-In-Review-March-2015

Month in Review
March 2015
Overview
Who’d have thought interest rate cuts were on the
agenda, however here we sit in 2015 and they’ve
become a reality. This drop in the cost of borrowing
will have varied effects on real estate across the
country. Our Herron Todd White offices from all
corners of the nation have come up with their go-to
guide on where interest rate falls ill make the biggest
impacts.
Sydney
The RBA reducing interest rates to a new record
low of 2.25% (and markets pricing in a further 25
basis points cut to come) has appeared to have an
immediate effect in the Sydney property market.
Many agents have reported bullish prices over the
past two weekends (7th Feb and 14th Feb) with a
notable spike in the number of bidders. This has been
reflected in the 83% clearance rate achieved over
the weekend of the 14th February and 81% clearance
rate achieved over the weekend of 7th February
compared to 70% the week prior (31st January)
and 71% prior to that (24th January). Agents have
indicated that the number of enquires increased
almost instantly following the cut and are predicting
a period of strong results in local markets.
The latest interest rate cut is expected to fuel the
property market as prospective buyers decide they
can afford to borrow more money on the lower rates.
This in turn, can push prices as up as buyers bring
their bigger purse to auctions. We expect activity
in the market to be particularly strong in the sub
$700,000 region as we anticipate a large number
of low to middle income buyers will continue to help
drive prices upwards, helped by the ever-present
investors. We do not expect this to change over
the short term and we anticipate this portion of
the market will perform well over the coming year,
especially with a further rate cut expected as early as
March.
As the majority of the banks have already promised
to pass on the latest cut, investors are expected to
respond and continue to remain a dominant force
in the market just as they were throughout 2014.
Economists say lending to investors for residential
property is now double the level it was in 2011 with
housing loan approvals for investors currently
accounting for a record high share of new loan
approvals in New South Wales (increasing almost
20% as of the end of December 2014). A cooling off
in the Sydney property market therefore is looking
increasing unlikely, at least in the short term.
The future over the medium to long term however
remains uncertain. One worrying fact is that rental
growth has not increased at a level even close to
the growth of Sydney property prices. This suggests
that the involvement of investors appear to be
speculative with many banking on capital gains
rather than attractive rental yields. It appears that
this increased investor activity (speculative based
or otherwise) is driving housing prices to rise faster
than fundamental factors suggest they should in the
Sydney market.
Factors including the aforementioned falling interest
rates, continued strong presence of overseas
buyers (fuelled by the falling Australian dollar),
tax incentives and positive market sentiment, has
seen unaffordability levels continue to soar in the
Sydney market with home ownership becoming
more unattainable for many, especially young people
looking to break into the market. This unaffordability
however has not yet appeared to have had a
significant effect on the market with regards to a
levelling off and we believe that as long as investor
demand remains steady, the market will continue on
Residential
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