Interest rate rise not the most pressing issue

For the first time in more than 11 years, the Reserve Bank of Australia (RBA) has lifted the official cash rate, increasing it by 25 basis points to 0.35 per cent.

According to the RBA Governor Philip Lowe, the board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the COVID-19 pandemic.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” he said. “There is also evidence that wages growth is picking up.

“Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

For industry experts, the decision to increase the official cash rate didn’t come as a surprise.

“The decision has been in the making for some time – it was inevitable,” UDIA WA CEO Tanya Steinbeck said.

“I would suggest that most homeowners would be prepared for this move, given the years of record-low rates we have experienced that were just not sustainable moving forward.”

Breaking down what the interest rate increase would mean for landlords, Nu Wealth Managing Director Daniel McQuillan said the modest rise would not have a severe impact.

“Investors will continue to be active in the property market and rent increases may start to moderate,” he said.

“We would need five RBA increases of 0.25 per cent to get to where we were just over three years ago, and people afforded the repayments then.”

REIWA President Damian Collins said for homeowners that had no debt on their property, this interest rate rise would make no difference.

“For those that have debt, they will see their net return drop, as the interest rate rise will simply mean higher costs,” he said.

For tenants, Mr Collins said he did not expect direct impact initially.

“Rents are driven by supply and demand, and rents are already rising due to the lack of supply – regardless of interest rates,” he said.

“Tenants who have periodic leases should be aware that investors are limited to raising rents a maximum of every six months.

“If tenants have a fixed term lease with a fixed rent, then no changes to rents can occur during the term of that lease.”

Although the interest rate increase has sparked a level of uncertainty, Mr McQuillan said WA was in a good position compared to other states.

“The reality is that WA is the best-placed state in Australia to absorb interest rises, as our economy is very strong and house prices are very affordable, so owners do not have high mortgages like those seen in Sydney and Melbourne,” Mr McQuillan said.

“Investors in these markets will be more sensitive to interest rates rises than Perth property owners.”

Mr Collins said the rise in interest rates was only one of many factors affecting the state’s market.

“Interest rates are just one factor that comes into the minds of investors,” he said. “The market is already in a state of significant shortage of rental properties.

“Expected capital growth and future rental growth also play a factor, and the review of the Residential Tenancies Act is coming up, with changes to the legislation potentially further favouring tenants.

“This could see a significant exodus of investors, which can have far more impact than changes in interest rates.”

For Ms Steinbeck, the bigger issue is housing affordability.

“The WA economy is performing extremely well and there is an expectation of strong population growth, as borders are open and people come here for the job opportunities and affordable lifestyle,” she said.

“That means we must be prepared for ongoing pressure on our housing markets. At the moment, Perth is one of the most affordable capital cities in Australia but, with critically low housing supply, we are already seeing upward pressure on established housing market values.

“The new house and land market is also likely to follow suit unless we take real strides to address the underlying supply issues.

“We need to learn from past property market cycles and ensure that this boom does not end in astronomical housing prices and many people priced out of the market simply because the market cannot deliver and meet the demand that we expect.”

Anthony Matteo-The West Australian

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