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Interest rates major factor for property market activity

Interest rates major factor for property market activity

By Rich Harvey, CEO, propertybuyer.com.au

Low interest rates have been a huge boon to the country's property market over the past year, and according to BIS Shrapnel, they will continue to be.

The market analyst's Residential Property Prospects 2014 to 2017 report makes the case that limited housing supply and low interest rates will continue to provide a boost to house prices, with the latter also helping to support purchase activity.

"The current standard variable rate of 5.95 per cent is, outside of the [global financial crisis] emergency low interest rates in 2009, the lowest level in over 40 years," said BIS Shrapnel's Angie Zigomanis.

However, these interest rates haven't done much in regards to the first home buyer demographic.

"The low interest rates have had minimal impact on first home buyer demand, which has weakened considerably as state governments have removed incentives for established dwellings in favour of targeted incentives for new dwellings," Mr Zigomanis continued.

"However, this weakness has been more than compensated for by the strength of 'next time buyers' and investors. Population growth has also experienced a surge as net overseas
migration increased from a low of 180,200 in 2010/11 to 244,400 in 2012/13, with the subsequent rise in rental demand also placing pressure on many capital city markets and helping to underpin price growth."

While some industry observers, such as RP Data's Tim Lawless, already feel that price growth has reached its peak in Australia, BIS Shrapnel is of the opinion that all markets won't weaken significantly until 2016/17 following interest rate increases led by the Reserve Bank of Australia.

In the meantime, BIS Shrapnel forecasts the strongest market conditions to be in New South Wales and Queensland due to limited supply, something to keep in mind for anyone considering Australian property investment

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