Rate cut won’t spark property sector

Yesterday’s decision by the Reserve Bank to slash the official cash rate by 1% may help stabalise the property market, but experts warn buyers are likely to remain wary given the perilous state of the economy.

Yesterday’s decision by the Reserve Bank to slash the official cash rate by 1% may help stabalise the property market, but experts warn buyers are likely to remain wary given the perilous state of the economy.

Auction clearance rates are down from the same time last year, while the number of properties sold at action has also declined in the past 12 months. While some pundits claim the RBA’s 100-point cut will help, others aren’t so sure.

Real Estate Institute of Australia president Noel Dyett says the rate cut took everybody by surprise. “I think it demonstrates how seriously the Reserve Bank takes the economic problems that we’re confronting at the moment.”

Dyett, who before the rate cut told SmartCompany prospective buyers would “sit back” from the market, says it’s still too early to predict any change.

“It’s very hard to tell because there are so many external factors. There are the American concerns that are spreading around the world, but [the cut] should be a signal to property buyers that the pressure is relieving a bit.

“Hopefully it will give a little bit of confidence back, but I still think there will be a doctrine of conservatism.”

Dyett also says the current downturn is too hard to compare with the 1980s and early 90s, because the “fundamentals now are probably a bit better”.

“I think what we’re seeing on an international level is more severe… It’s very hard to compare.”

Australian Property Monitors economist Liam O’Hara predicts the market will see a period of major stabilisation because of the massive cut, but buyers won’t move for some time.

“We’re not going to see volatility in auction clearance rates that have been plummeting, and prices generally in all capital cities should stabilise.

“I think we’re going to see stability in prices, but I don’t think we’re going to see a massive turnaround – we’ll have to have a lot more interest rate cuts beyond this one for the property market to increase demand.”

O’Hara rejects claims that the interest rate drop will see a boost in property sales, at least straight away.

“I think the perception out there will get better, but we could be heading into a recession, so it’s a question of how much more will the Reserve Bank cut rates.”

O’Hara says there is one major difference between the credit crisis and the early 1990s. “It’s just the sheer level of debt; it’s gigantic. Someone’s been asleep at the wheel here for quite some time.”

O’Hara says more investors are going to start reversing positions and getting out of riskier assets such as property and shares, and moving into cash.

“What we’re witnessing is a slowdown in credit creation and that’s obviously in the past fuelled a lot of demand in the economy, even in the US, but that’s going to slow.”

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• More property projects collapse as credit dries up