Lower interest rate may support property investment

ImageThe Reserve Bank of Australia has lowered the interest rate in a move that may support property investment areas across the nation. Image

Property investment in Australia may be encouraged by a recent decision from the Reserve Bank of Australia (RBA).

The organisation decided to cut the interest rate by 50 basis points to 3.75 per cent yesterday (May 1), in a move that was lauded by stakeholders of the property industry all over the country.

RBA governor Glenn Stevens referred to economic sluggishness and previous cuts in his statement as a basis for the decision: "The accretion of evidence over recent months suggests that it is now appropriate for a further step in that direction," he explained.

While pressure has been building from interested parties to drop the rate for months, there is some concern that the lower rate will not have the intended effect if the banks keep their interest rates high.

Mr Stevens explained the larger than expected drop as a strategic move to counteract the likely decision of the major banking institutions to continue with their trend of keeping rates well above the amount set by the RBA.

"A reduction of 50 basis points in the cash rate was, in this instance… judged to be necessary in order to deliver the appropriate level of borrowing rates," he said.

The Housing Industry Association pledged their support for the move, describing it as decisive action that would lead to improvement in the construction industry and the economy as a whole.

However, chief economist Dr Harvey Dale was also concerned that lenders would not follow suit.

"Anything less than a 100 per cent pass-through will further dilute the effectiveness of monetary policy and damage confidence in this important policy lever," he said.

Meanwhile, the housing market across Australia saw a modest 0.9 per cent rise in prices for the March quarter, according to the Australian Property Monitors’ Quarterly Housing Report.

Sydney remains the most expensive capital city with a median house price of $641,037, but prices remain relatively affordable compared to recent years.

Median prices for units reflect increased market activity in the NSW capital, with a 2.5 per cent rise in cost over the last quarter.

Sydney property investment may benefit from the lower interest rate as it is also supported by continued demand and an abundance of development projects spurred on by a growing population.

Posted by Grace Neale