Fears rate cut will spark property bubble

Real Estate

The Reserve Bank interest rate cut last week has some analysts tipping the move will further fan the heat in the property market, particularly Sydney. Mortgage lenders are reporting more interest from investment buyers whilst the Australian Prudential Regulation Authority is still pushing for tighter lending practices from banks. With the property market proving to be one of the only bright spots in a sluggish economy, are we headed for bubble territory?

Signs growth is slowing
The RBA decision to cut the interest rate by 25 basis points to an historic low of 2.25 per cent is providing an opportunity to increase the levels of new home building which has been a stand out performer in the Australian economy in the past couple of years.
More figures are pointing to a softening of the heat in the property market with the AiGroup/HIA Performance of Construction Index revealing activity declined for the third straight month in January. The headline index was up 1.5 points to 45.9, still below the 50 level that separated expansion from contraction however the rate of decline was lower than December. Falls were recorded in detached dwelling activity, down 5.4 points to 40.9 as well as apartments which slipped 1.4 points to 42.3.  
The HIA New Home Sales Report is showing ongoing strength in the new home building sector. Sales in 2014 were 14.4 per cent higher than in 2013 and the recent rate cut by the RBA should contribute to maintaining the momentum. For the month of December seasonally adjusted home sales dipped by 1.9 per cent however sales were up nearly 5 per cent for the December quarter. 

FNN spoke to Diwa Hopkins, Economist at HIA about what the figure point to for the year ahead.
“So, despite the 1.9 per cent dip in sales for the month of December last year, this result follows a run of increases in the final months of 2014 so these figures suggest that actual new home building at the start of 2015 in these current months should be rising. In the final months of 2014, we saw renewed momentum in multi unit sales so that suggests that the momentum is likely to be concentrated in that segment of the market, detached house sales seem to be tracking along at reasonably healthy levels but there doesn’t appear to be the same sign of growth.” 
Australian auction results

Looking at this week’s auction results across Australian capital cities as the market slowly comes back to life after the Christmas break - Sydney recorded a 82 per cent clearance rate from 297 properties for auction, Melbourne cleared 67 per cent from 189 properties, Brisbane had a 46 per cent clearance rate from 91 properties listed and Adelaide cleared 73 per cent from 60 listed auctions. 
Commercial property sector
AVJennings Limited (ASX:AVJ) improved first half net profit by 42 per cent to $11.9 million and said improving market conditions gave plenty of confidence for a strong second half result. 
Property developer Finbar Group Limited (ASX:FRI) has sold a $72.8 million office complex located in Perth’s Victoria Park and expects to realise $20 million in cash from the deal. 
Westfield Corporation (ASX:WFD) has sold stakes in three US malls to O'Connor Capital Partners to form a $925 million joint venture with the private real estate developer.
APN Property Group Limited (ASX:APD) has announced the completion of the acquisition of the Coburg Hill Shopping Centre for its APN Coburg North Retail Fund. 

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.