Interest rate cut is helping SA property buyers score home run

REAL estate experts are hopeful this week’s interest rate cut will drive property sales and pull South Australia’s building industry out of a slump.

REAL estate experts are hopeful this week’s interest rate cut will drive property sales and pull South Australia’s building industry out of a slump.

This comes after the Reserve Bank board recommended a 0.25 per cent cut to its cash rate on Tuesday.

Real Estate Institute of South Australia president Greg Moulton said the rate cut came as a surprise and would be felt across the market.

“It’s welcome relief for first- home buyers in particular and we’re expecting that market to warm up again after the Government had taken away some of the incentives over the past few months,” Mr Moulton said.

He said the rate cut would increase demand, raise prices and most areas of SA could expect good capital growth.

“Rental yields will also increase, so investors will have better yields and for first-home buyers it just eases their entry point, so while they’ll still need their deposits, their weekly repayments won’t be as much and it should mean they can come into the market quicker,” Mr Moulton said.

“Even if there’s no further cut, our market will warm up – we had 3.91 per cent capital growth last year and I’d say we could expect more like 5 or 6 per cent this year, which is a good healthy rate for SA.

“The 0.25 per cent rate really has the biggest impact on first-home buyers and the investors, but it all helps across all of our markets.”

Mr Moulton said increased market confidence from the rate cut should raise retail spend, boost tourism and benefit government through increased stamp duty takings.

“Underpinning all of this, of course, is if the banks actually pass it on, but the Real Estate Institute would be unbelievably disappointed if the banks don’t pass on the cut,” Mr Moulton said.

Housing Industry Association regional director Robert Harding said the building and construction industry had been treading water for the past three years.

“We haven’t seen the growth in detached housing that the eastern states have had and that’s having an effect on our smaller builders and our smaller contractors in employment terms, and that’s not a good situation for the state,” Mr Harding said.

“A reduction in rates is always welcome because young people struggle to get into their first home when rates are higher, so I would hope that the continued reduction in rates would say to people ‘this is a really good time to build and buy’ because this scenario is unlikely to ever be repeated, certainly not in the near future.

“We also have good trades in ready supply at the moment and that’s not a situation we’ve always had.’’

Raine & Horne Murray Bridge principal John De Michelle said the rate cut would provide a welcome boost for regional areas, particularly the river town of Murray Bridge.

“We expect investors will start to look at regional towns such as Murray Bridge where the median price is about $250,000 and rental yields above 5 per cent are achievable,” Mr De Michelle said.

“Investors are realising they’re paying more in the city and will now go bush to get the benefit of this cut.”

Mr De Michelle said Thomas Foods announcement of 200 new jobs would also help drive the property industry in the region.

“This will attract more transient contract workers who will need rental accommodation, which savvy investors will be sure to note,” he said.

CoreLogic RP Data head of research Tim Lawless said the Reserve Bank’s decision to cut the cash rate would take the cost of mortgage debt to its lowest since July 1968 – an expected standard variable rate of 5.7 per cent and discounted variable rate of 4.85 per cent.

“Lower mortgage rates have the potential to add some fuel to what are already strong housing market conditions, however, the stimulus from lower rates may not be as influential on housing market conditions as what we have seen in the past,” Mr Lawless said.

“The challenge for the ­Reserve Bank is to stimulate stronger economic growth without over stimulating the housing market.

Damien West and Hayley Smith are excited at the prospect of owning their first home. Picture: Tricia Watkinson

THE FIRST HOME BUYERS

For Hayley Smith and Damien West of Lockleys, the interest rate cut has put the dream of home ownership within reach.

Ms Smith, 28, who works in property management, and her business analyst fiance Mr West, 28, are renting at Lockleys and say they hope to buy a home after they marry later this year.

“We dabbled last year and got pre-approval but we decided to focus on wedding and honeymoon planning and then when we return focus solely on househunting and purchasing a house,” Ms Smith says.

Ms Smith says the couple weighed up buying at the previous interest rate of 2.5 per cent, but at the time it was a better financial decision to continue renting.

“Looking at the old interest rate and looking at how much interest we would have had to have been paying to get a house we liked in an area we wanted, when we weighed it up it just wasn’t worth it and it made more sense for us to keep renting,” Ms Smith said.

“If you’re just paying interest, you’re not really paying the loan off.

“I’m hopeful they will drop the interest rate lower, but realistically where they are at now I don’t know if they’ll really go much lower, so we’d like to take advantage of that now rather than wait and see and possibly miss out on what they are at now.”

Ms Smith said she hoped the rate cut would fuel activity across all sectors of the market so there was an influx of affordable homes as those owners upgrade.

“This interest rate cut has definitely prompted us to have confidence in the fact that we will have a home within the next 12 to 18 months providing they don’t go back up,” Ms Smith said.

Margery and Ross Turner are selling their Encounter Bay home to downsize to a smaller place. Picture: Naomi Jellicoe

THE DOWNSIZERS

FAR from just benefiting first-home buyers and investors, Ross and Margery Turner hope this week’s interest rate cut will make it easier to downsize from their luxury coastal home.

Mr and Mrs Turner, 76 and 72, are selling their waterfront 90a Franklin Pde Encounter Bay home and say they hope the interest rate cut will help them sell their home quicker and for a better price.

“I think the rate cut will open up the buyer pool to people who were almost at that price range originally — I think this week’s rate cut would be the icing on the cake for them and put it within reach,” Mr Turner said.

“I imagine if the person who buys our house has to borrow money, then they will now be in an advantageous position to shop around with the banks and get the best available lending rate at the moment, and the same would apply to me if we were needing to borrow for our next home.”

“Hopefully there will be more properties released now for us to either buy an existing property or some suitable land, hopefully on the waterfront, and build smaller.”

Mr Turner said he was hopeful of future interest rate cuts.

“The economist from the Macquarie Bank this week said he suspected the rate would go down by a further full 1 per cent over the next year, in stages, so there are good signs ahead for people buying property if they have to borrow,” Mr Turner said.

“At the moment it’s as low as it’s been for years and with potentially a further 1 per cent on the way, that’s going to be advantageous for a lot of buyers.”

Mr Turner said he hoped the interest rate cut would fuel sales in the Fleurieu Peninsula.

“We’re only an hour from the city and there are now younger people who live here and work in the city and they can commute to town easily,” Mr Turner said.

“In cities like Melbourne or Sydney it would just be another suburb.

“The market’s quite strong down here at the moment and it would be the best time in our experience to buy by far because of the interest rates.”

Originally published as Interest rate cut is helping SA property buyers score home run