Today’s decision by the Reserve Bank to leave interest rates on hold was not unexpected, however, given the impact of the bushfires through the Christmas period and slowing economic momentum, we shouldn’t be surprised if rates are cut further in the early months of the year.
The continued low-rate environment will have significant implications for both residential and commercial real estate. A growing number of home loans are now below 3 per cent and look likely to remain at those levels or potentially fall even lower over the next six months, supporting the continued resurgence of the market following last year’s rate cuts.
The news for commercial property is more mixed, with the retail sector (which is dealing with structural headwinds of its own) particularly exposed to the kind of soft conditions currently being experienced by the Australian economy. On the other hand, the office and industrial sectors are still growing quite strongly, and a low cost of capital means prolonged investor interest for these markets, signalling price increases down the track. The caveat in this case is on the demand side, where a slowing economy will impact upon owners’ ability to find tenants and generate rental growth.
To summarise, regardless of today’s decision investors should be prepared for further rate cuts in the immediate future, continuing the low-rate environment. In our view that is encouraging news for residential, mostly positive for office and industrial, however we’re more muted about prospects for retail under the circumstances.
Subscribe to the below to receive my latest articlesLuke Dixon, Head of Real Estate Research
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.