MEDIA RELEASE | RBA Interest Rates
Another interest rate rise! What does this mean for the development sector?
The Reserve Bank decision moments ago was to push up the cash rate by 50 basis points to 2.35. In the development and BTR market, the decision was widely anticipated, as is the expectation that more increases to come.
The fact is there is a multitude of factors influencing property asset values of which interest rates are just one. It includes the type of property, location, Holding income and likely rental growth, planning environment and the improvement of local amenity and infrastructure – and this list is not exhaustive.
We are still experiencing strong demand for quality sites that will be buoyed by ongoing overseas interest from sovereign wealth funds, insurers, and pension funds due to Australia’s safe haven status for capital. Additionally, we are still seeing strong local developer demand for larger, well located development opportunities, albeit with an adjustment on required settlement terms.
In conclusion, higher interest rates are never welcome. But when the cash rate is still only at 2.35% and the increase reflects a growing economy in which commercial property is in demand. Although this may slow down end purchaser activity in the short term, we don’t expect the current rate rise to be the primary deciding factor on developers transacting on well located assets.