Posted on July 16, 2015
We sat down with Ron Cross, CEO of ParkTrent, to talk about Australia’s historically low interest rates and how this is affecting the property market.
Interest rates are the lowest we’ve seen them – how is this affecting the property market?
Certainly it’s an assistance and an aid for people to become involved in property by buying their first home or buying an investment property. But we also need to remember that these historically low interest rates are only in Australia, but in the Western world we still have very high interest rates; fixed rates are now running between 4.2 and 5 percent according to API Magazine.
So we shouldn’t get carried away thinking we have the lowest interest rates in history, which we have, but that’s because Australia historically have some of the highest interest rates on the planet. So I believe that these low interest rates we’re currently enjoying, over the next 6 to 12 months we should see even a further reduction in them.
Will this further reduction continue to stimulate the housing market, making property more affordable for first homebuyers and investors?
The first homebuyers in today’s marketplace are caught between a rock and a hard place. They’re in a difficult situation because of the simple fact that major cities are attracting massive population increases and that demand for housing is pushing up the pricing.
So I don’t think the low interest rates are contributing as much as people think in the broad spectrum of the community that property prices are going up solely because of the interest rates being at the rate that they are. Our population in major cities is actually increasing by over 1,000 per week. This is an enormous amount of pressure on housing everywhere, but particularly a lot of people who are coming in want to live in the major cities where the services are, where the security is, and also where – in most cases – the jobs are. Interest rates are a part of housing affordability, but it’s not the total picture; the total picture includes supply and demand and our population growth.
In fact, we’ve never had this amount of population growth in the history of Australia so we need to understand that this is going to stay with us for a long, long time. It’s the current climate that we’re in of high population growth and people wanting to live in the major cities of Australia.
With the high demand for housing combined with the low interest rates, would you say the current market is geared towards sellers?
Particularly in the Sydney market sellers are enjoying good prices for their properties and certainly people who were able to become involved in the Sydney property market 5 or 10 years ago are certainly reaping the rewards today. But Sydney is just one market of a very large country, and all the other major cities are not performing anywhere near the level that Sydney is performing. So we shouldn’t get carried away with just having one beaming light in there; according to the Australian Bureau of Statistics property index, the Brisbane market which is quite subdued, you have the Melbourne market which is not performing as well [as Sydney], the Adelaide market which is virtually subdued and the Perth market which is actually in slow decline. Everyone’s talking about the property market and the “property bubble”, but it’s kind of restricted to a very small part of Australia.
To read the rest of the interview, click here.
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