Are you Sitting on your Hands?

Graeme Salt

I attended a business breakfast today and was surprised to hear that much of business is sitting on its hands till September. Apparently, business investment decisions are being withheld pending the forthcoming federal election. This really surprised me, because while hardly going crazy, many of my clients are actively looking at purchasing property. But don’t just take my word for it, here is what some recent research is saying about the property market. According to the Australian Bureau of Statistics, there was a 5.2 per cent lift in the number of home loans issued to owner occupiers in March led by strong gains in NSW and Victoria. In total there were 48,071 home loan commitments in March compared with 46,225 in February. If you tune into Australian Property Monitors’ wrap of weekend auctions, then most capital cities seem to be turning in healthy results. SQM Research’s Managing Director, Louis Christopher, says the current recovery will be much more sustainable than the last. Properties are set to gain value over the next year, he says, but at a slower rate than the previous recovery. "We've already seen prices have been increasing, but just not at the rate of knots we had in the last recovery in 2009," he is quoted as saying on the Smart Company website. "That was really quite a surge, and the difference between then and now is the interest rates. We have generally low interest rates right now, " he said The Reserve Bank of Australia has said that there is scope to cut rates further and many economists expect them to do so. For example, Westpac’s Chief Economist, Bill Evans believes the cash rate to fall again by 25 basis points to 2.5 per cent in June and then to eventually bottom out at 2 per cent by the first quarter of 2014. Which brings me back to my first point. Short term, interest rates are one of the strongest drivers of property demand. Most commentators attributed the lift in the ABS figures to the reductions in interest rates that have happened over recent months. Given there was a cut last week and economists are predicting more, then we can expect Australians to remain active in the property market. At least this part of the economy is not sitting on its hands.