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Records come tumbling down with new RBA decision

Date Posted: May, 2015

By Rich Harvey, CEO, propertybuyer.com.au

History has been made by the Reserve Bank of Australia (RBA), but is it going to be good news for those buying Australian investment property? At the May meeting of the RBA, the board announced that the official cash rate is being cut by 25 basis points, to reach the record low of 2 per cent. 

This is a big move, although one the RBA had backed itself into a corner over. With consistent allusions to further easing of monetary policy in previous statements, it was a matter of when, not if, the cash rate would go down. Now that it has happened, what are the impacts going to be for your investment? 

A spread of growth

We know that Sydney has been hot spot for real estate growth in recent years, with dwelling values up 14.5 per cent over the last 12 months. The median Sydney asking prices continue to remain steady during April 2015, with the current asking price for a house sitting at $1,080,000 and $609,600 for units according to SQM Research.

Tim Lawless of RP Data responded to the RBA decision on May 5, and gave his insight for the future of Australian property

"Potentially we may start to see stronger housing market conditions in cities like Brisbane and Adelaide where capital gains have been relatively muted over the past two cycles of growth," he stated. Mr Lawless also expects some moderation in the fast growth across Sydney, so it's important to make sure you know specific growth levels and market trends for your desired neighbourhood – if it's a grower, it's a goer.

With auction clearance rates nudging 90% (which is the highest ever since records began in the mid 1980's) and property listings down 11% for April, SQM Research are predicting that the forecast for capital growth in the Sydney market looks set to be at the higher end of their range of 11% to 15% for the calendar year.  So it looks like there is still some petrol left in the tank before growth moderation kicks in.

More ease of borrowing – but be careful

The Real Estate Institute (REIA) of Australia also chimed in on the situation, noting that low interest rates typically allow people to secure a home loan that is easier on their bottom line. 

"[H]owever borrowers should remember that interest rates will inevitably rise as the economy strengthens and they should not overreach themselves," said REIA President Neville Sanders in the 5 May media release. 

He also noted that the percentage of a family's median income needed to repay a mortgage has fallen from 34.8 per cent to 31.5 per cent in the last three years, highlighting increasing affordability. 

With some expectations of moderation in the market, it becomes even more important to have the right team on your side when you want to buy. Buyers can enter a market blindly due to a good interest rate environment and still come out with a property that doesn't generate the wealth they want it to. Engage a buyers' agent to get expertise, off-market contacts and sage advice on how to make intelligent steps into the market.