How the RBA rate holds will impact the off the plan property market
The consecutive rate holds by the Reserve Bank of Australia has put a spring in the step of both homeowners and prospective property purchasers.
The official cash rate is now at 4.1 per cent, and it's expected it's either at the peak, or is one rate hike away. Three of the Big Four banks now expect the cash rate has peaked, with NAB expecting one more hike, in November.
Now attention has turned to when rates will start coming down. The majority of economists and experts don't think it will be until at least the second half of 2024, although CBA, the nation's biggest lender, believes it could be as early as March.
How will the cash rate holds affect the off the plan property market?
Everything has pointed to continued growth in the apartment market across nearly every capital city in the country. What's been holding back significant growth in some capitals has been the RBA's rate hikes over the last 15 months.
Immigration forecasts, low building approvals, problematic construction costs, land prices, and critically low supply suggests apartments can only get more expensive from here on in.
What seems to be a more difficult conversation in the off the plan apartment market is trying to get the buyer to understand what the cash rate is now doesn't really matter (that is of course unless the building is approaching completion.)
What's important in the off the plan market is what the cash rate will be when the building is complete. If construction is 12 months or so away from completion, then you might actually be buying into an environment where mortgage rates are dropping.
For the last 12 months or so, project marketers have had wave after wave of buyer come through their display suite doors, without any confidence in what they can spend, and what their mortgage repayments might look like come completion date.
Projects by Buxton Director Heath Thompson says the pause will particularly help buyers in the off the plan market.
"It's been hard for people to have a good understanding of what their borrowing capacity will be in the 12-18 months time when there has been such uncertainty around interest rate movement," Thompson says.
"Finance brokers have only been able to advise on what they can borrow now and this has been a moving target each month. I think we are getting to a time where people can start to forecast their finances with some confidence."
Thompson believes different sectors will react in different ways depending on circumstances.
"Younger and middle age demographics have been heavily impacted by reduced borrowing capacity and general uncertainty, whereas downsizers generally borrow very little or not at all to purchase so are less impacted."
Martin Brighton
Scott Jessop, Sales and Marketing Director at Sunkin who have recently launched their sustainable Highett Common masterplan, said there's certainly a lot more buyer confidence since the first RBA pause, and he expects there to be even more now they've paused for a second month in a row.
"Purchasers are looking ahead to the next 12-24 months and thinking that we should be in a much more stable economic period than we are now, and having additional time prior to settling gives them an advantage to get themselves ready to have a mortgage over this period," Jessop says.
Jessop says, despite winter traditionally being a slower period for off the plan property, this year has remained reasonably strong across the board due to the low supply volumes currently on market.
"Generally speaking, a lot of purchasers are still comfortable with interest rates normalising following COVID, but the speed of the increases was the major issue which can affect people's foresight and future planning, they end up thinking in the now.
"On the flip side, we've still seen a lot of strong demand even with this going on which just goes to show the underlying strength of the property market at the moment."
Jessop believes there may only be a small window however for buyers to secure apartments at their current price.
"I really think there is a slight window of opportunity to get in and purchase now prior to the immigration influx, prior to interstate migration picking up again and drastically low current and future housing supplies."
It's a sentiment felt by property advisory giant Charter Keck Cramer, who believe off the plan apartments could rise by up to 25 per cent. A study across 10 Melbourne suburbs found some developers have already started putting their prices up by 15 to 25 per cent, and buyers are paying it.
Read more: Melbourne off the plan apartment values could spike 25 per cent: Charter Keck Cramer