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Property Investors happy with steady interest rates – still at 4.5% (6/10/10)

Property investors were given a breather with the Reserve Bank’s decision to keep interest rates at 4.5 per cent yesterday.

A rise of .3 per cent in retail sales in August after one of .7 per cent in July has also given retail landlords a boost before the crucial Christmas trading period.

Economists said that the latest round of lacklustre figures suggested that the economy is not as strong as many policy makers might hope and any increase in interest rates could challenge a number of industries, such as building and industrial property markets.

Property and construction consultants Davis Langdon said holding the official rate at 4.5 per cent would assist to strengthen constructing industry confidence.

The firm’s Australian and New Zealand research manager, Michael Skelton, said a pause in rate rises would support the residential sector, with building approvals for dwellings continuing to decline since February.

Given the housing shortage, this would remain a hot topic, he said.Some of the larger developers, including Stockland and Mirvac, have been warning that higher rates along with a shortage of land will dampen development within their residential divisions.”

Although the fundamentals in Australia’s property market continue to improve and the medium-term outlook is very positive, non-residential building approvals remain low and compressed builders’ margins and high costs of borrowing are impeding the viability of some projects,” Mr Skelton said.He said significant investment within the non-residential sectors was required to support the next phase of the resources boom, which is the key driver of national economic prosperity.

RP Data’s national director of research Tim Lawless said, “Default rates remain low, which suggest that Australian home owners should be able to absorb this rate rise fairly comfortably.  If we see another four or five hikes the downwards pressure on home values is likely to worsen,” Mr Lawless told The Adviser.

“For investors, the prospect of higher interest rates is not all bad.  Higher interest rates are likely to create additional demand from renters in what is already a very tight rental market.  We are already seeing the first signs of higher weekly rents and with more prospective buyers choosing to rent rather than own the upwards pressure on rents is likely to increase yields for investors further.”

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