Transcription of Finance News Network Interview with RP Data’s General Counsel and Head of Corporate Affairs, Craig MacKenzie. Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me is RP Data’s General Counsel and Head of Corporate Affairs, Craig MacKenzie. Craig, welcome to FNN.
Craig MacKenzie: Thanks Lelde.
Lelde Smits: RPData is a provider of Australian property data: What are the biggest trends you have noted in 2012?
Craig MacKenzie: I think stabilisation would be a key trend Lelde in terms of 2012, we’ve seen home values remain flat in 2012 across the combined capital cities compared to a reduction in 2011. The bottom of the market according to our data was in May 2012, we’ve seen an improvement of about 2 per cent in home values since that time. And we’ve seen a real increase in the number of sales transactions occurring in the latter part of 2012, still below five year averages across the combined capital cities but a real increase over what we saw in 2011 in terms of sales volumes.
Lelde Smits: Where have you observed the Australian property market is showing signs of strength and weakness?
Craig MacKenzie: In terms of strength, certainly the Perth and Brisbane markets have rebounded quite strongly through 2012. In terms of property types, the unit market across the country has shown a lot of resilience through 2012 and yields on units are now over and above those on detached homes. In terms of weakness certainly markets like Hobart have seen significant weakness during 2012, and through the latter part of 2012 we did notice some weakness across the Melbourne market in particular. We saw home values come off 1 per cent in November 2012.
Lelde Smits: The Reserve Bank of Australia (RBA) cut the key cash rate to a GFC (Global Financial Crisis) low of 3 per cent at its December board meeting: Do you believe it was an appropriate decision?
Craig MacKenzie: I think that’s really for the Reserve Bank to form a view in terms of appropriateness, what I would say is that you can’t compare a 3 per cent cash rate in 2012 to where we were in 2009; We have a very different environment to 2009, back in 2009 we had a very stimulatory fiscal policy with governments handing out cash to promote economic stimulus. We had the governments doubling the first home buyer boost, so as a result in 2009 we saw the level of first home buyer activity increase to about 30 per cent of all home loans. Today that levels at about 20 per cent.
If you contrast to where we are today, first home buyers are at about 19 per cent of the market, fiscal policy is tightening as opposed to being loosened as it was in 2009, and most importantly the standard variable rate today is about 6.4 per cent whereas back in 2009 it was at 5.7 per cent on average. So generally speaking a far less stimulatory cash rate a 3 per cent today than it was in 2009.
Lelde Smits: How to you anticipate this year’s monetary policy movements will impact the property market in 2013?
Craig MacKenzie: I think there’s a very close correlation between the interest rates and consumer confidence. We’ve seen an increase in consumer confidence through the latter part of this year, corresponding with the four RBA cash rate reductions in May, June, October and December. Whenever we see an increase in consumer confidence we also see an increase in sales activity across the market and certainly we’ve seen that in the number of property sale transactions occurring through the latter part of 2012; We certainly have seen an increase from where we were a year ago in terms of sales activity.
Lelde Smits: Certainly,so how much further do you believe rates need to fall in order to support and spur growth in Australia’s property sector?
Craig MacKenzie: I think the Reserve Bank really needs to assess its goals and objectives with respect to housing here. If the Reserve Bank is looking to housing to take some of the slack off the mining sector given the investment phase of the boom is coming to an end, and they really want to see housing as a key contributor to growth, I think we can expect to see a further 25 to 50 basis points of reduction in the cash rate. That is likely to reduce the standard variable rate to around 6 per cent, which we believe would be a stimulatory interest rate in order to promote demand for housing credit.
Lelde Smits: Finally Craig, where do you believe Australian property investors will find the greatest opportunities in 2013?
Craig MacKenzie: Well certainly in terms of investment it depends on your age profile and your risk appetite so I think certainly the interesting trend at the moment is term deposit rates are down you know around about the low 4 per cents, yields on property, be it units or detached homes are now 4.5 – 5 per cent and we’ve seen some markets like Brisbane and Perth and in particular Darwin have very strong improvements in rental yields over the past 12 months. So as an investor I think it’s about diversification, you know, thinking about where you are in terms of your investment spectrum, be it term deposits, equities or property, and I think a carefully diversified strategy including property would be a wise strategy going forward into 2013.
Lelde Smits: Craig MacKenzie, thank you so much for your outlook today.
Craig MacKenzie: Thanks Lelde.
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