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Ben Kingsley

07/11/2017
Blog post by Ben Kingsley

RBA Rate Decision – November 2017

On the first Tuesday of the month where the nation stops for a horse race called the Melbourne Cup, the RBA have met and they’ve kept the cash rate on hold at 1.5%.

Now, the cash rate hasn’t moved since August 2016, so obviously the RBA are feeling quite comfortable where they have the cash rate. The reason for this is the lenders and the regulators have been doing their heavy lifting. We’re doing out of cycle interest rates, which has basically taken the pressure off the housing market; but it’s also meant that, potential lending for business, which will stimulate economic growth, is still available at attractive interest rates for those looking to invest in their businesses.

So I thought I wouldn’t do the fly-around in terms of the economic numbers. I wanted to focus in on the housing numbers as we are almost through the spring selling season.

 

Let’s have a look at a bit of the data provided by CoreLogic — this is their October numbers. Quarterly numbers across all of our major capital cities:

We did see Sydney’s quarterly result in a -0.6 — so property prices have moved across the Sydney basin by -0.6 over the last quarter. Melbourne, on the other hand, continues to be growing, and that quarterly number is around 1.9%. So, although the October number was a little bit softer, it definitely is still very, very much a moving market. Brisbane is also a moving market —up 0.6%. Adelaide — also slightly up at 0.1%. We had Hobart in the same category— just a little bit of a tick up at 0.1%. Darwin has been the negative — so we’re basically seeing the Darwin market move down a -4.4% over the quarter. Canberra is up 1.1% and again, also in the red, is the Perth market —down -0.7% over that quarter. Again, these are just snapshots.

 

Let’s look at the yield numbers now.

We’ll take a look at the national snapshot — what we’re talking about here is houses. So the housing yields we’re seeing across Australia is around 3.5%. For units — around 4.1 %. But we can’t buy the Australian property market in terms of rental yield — so let’s dig a little deeper.

In the regional areas we have obviously seen more attractive rental yields, so if you’re chasing cash flow these are the market places you should look at. So houses — 4.9%. Units — 5.2%.

Across our capital cities now. With obviously a lot of growth in some of our bigger centres, the overall capital yields that we’re getting in the capital cities for houses is 3.1% and for units it 3.9% — so units still attracting a slightly higher rental yields. Now, let’s dig deeper into the capital cities, and we’ll go around the nation.

So let’s start with Sydney. Housing rental yields — around 2.8 %. For the unit market — they’re around 3.6%. Melbourne is the lowest for houses — in terms of rental yields at only 2.6%. You can still buy and find better value in this market, but that’s the sort of mean average we’re seeing here. Units — 3.9%. Brisbane houses — 4.2%. For units — 5.2% — so still an attractive rental yield in Brisbane, but be careful with the oversupply that’s going to hit in 2018. Some of those yields might come down a little bit. In terms of Adelaide — we saw houses at 4.1%. Units — at 5%. Canberra — also houses at 4.1%. Units — a little higher at 5.3%. We’ve got Perth looking at houses — at 3.8%. Units — 4.3%. Hobart is definitely one of those yielding markets where we are seeing houses at 5% and units at 5.1% yields. Darwin, just to round out, is the most attractive and that’s probably because of the decrease in the actual value; where you’re seeing houses having 5.8% rental yields and units also having 5.8% rental yields. So if you’re after cash and you want to buy at the bottom of the market, these are the sort of aggressive markets you can go into.

 

So as the values continue to grow in Melbourne market, the rental yield pressure might continue but we are definitely seeing, obviously with the correction starting in the Sydney market, some of these rental yields will start to improve in this particular market, as well as Melbourne and Sydney population growth. It is a big story for these two markets — we’re still seeing very, very good economic growth in these two centers, and that’s attracting the population story. Melbourne, around 1500 people a week moving there, and Sydney, around 1,100 people moving there. So these are big numbers and they can obviously absorb some of the rental vacancy stock that’s out there as well. If Brisbane can start to get its economy moving, hopefully this will see the unit oversupply absorbed quicker than we anticipate.

 

Overall, the property market is definitely starting to slow down from its heights due to the lending restrictions that we’re seeing in the market. On balance, as we move into the end of the spring selling season, the market’s holding up reasonably well; but we’re certainly not going to see the momentum that we saw in 2016 and into 2017, we are going to see a slowing property market in terms of capital appreciation.

Again, it comes down to where you’re buying, why you’re buying there, looking at the fundamentals of supply and demand, and getting all of this story right so you can get the best opportunities. Do your research, make sure you select well, and if you’re not quite sure you can always reach out to us and we can help you out in that space.

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