Property analysts expect 2015 to be a “fantastic” year for the market if the RBA cuts interest rates as predicted by a growing number of economists.
As capital gains continued to rise throughout 2014 after a surge the year before, the market maintained predictions a rate rise would be likely in mid-2015.
The RBA effectively used jawboning to slow growth, after record-low rates encouraged property investment and encouraged buyers.
But this week Deutsche Bank led the way in boldly predicting a 50-point cut to the official cash rate to 2 per cent in 2015, followed by Goldman Sachs and Westpac, after the release of weak growth figures.
While ongoing low rates and further cuts would push up prices, frenzied buying activity outside of Sydney is unlikely. Sydney may overheat but there is little risk of a housing bubble
Propell National Valuers national research manager, Linda Phillips, said the RBA had been reluctant to canvas the idea of another cut. Ms Phillips noted governor Glenn Stevens has said a reduction of 25 basis points would not be enough to make any difference – which he never said at the times when the rate was actually cut that much.
Ms Phillips said a bold cut would be needed to have a true impact.
Macroplan Dimasi chairman Brian Haratsis expects that to happen.
“We’re predicting a 50-point cut within the first six months of next year,” he said.
“It will happen next year. The dollar will be between US76¢ and US80¢, it’s the year before an election and business will respond to it,” he said.
Mr Haratsis said 2015 would be a “fantastic year for property”.
He said property yields were performing well and Asian investment into Australian property was set to continue.
Mr Haratsis said the current property cycle was not unlike those from the past – but was likely to stretch longer thanks to low rates and ongoing investment.
He has backed capital gains in the Brisbane and Adelaide markets, which tend to follow growth in Melbourne and Sydney. Lower prices and solid yields have drawn investors to Brisbane and Adelaide’s residential and commercial markets.
There have been suggestions both markets might misfire and capital gains fizzle in Brisbane and Adelaide because those cities lack the job opportunities and population growth Sydney and Melbourne have experienced.
“There is still a 40 per cent arbitrage in prices between Sydney and Melbourne,” he said.
Mr Haratsis backs estimates that 60 per cent of investment into new Brisbane projects are from interstate.
AMP Capital chief economist Shane Oliver noted in his annual wrap-up on Thursday that much of the country’s house price growth was isolated to Sydney and Melbourne and tapered off towards the end of the year.
He said the RBA was expected to cut the cash rate to 2.25 per cent early next year and there was a 50 per cent chance of another cut in the June quarter, which would stimulate house prices.
AMP Capital’s analysis of investment returns for the major asset classes showed total returns for the listed Australian property trusts were 21.6 per cent – the strongest returning class in the country. Residential property was up 8 per cent in 2014 and projected to rise 6 per cent next year.
HSBC chief economist Paul Bloxham said while growth is below trend, HSBC is of the view that the RBA’s easing phase has ended and the current record-low rates would continue to support property investment.
On the ground, agents have reported a rise in volumes have kept a lid on prices in Melbourne. In Sydney, demand is still outstripping supply and buyer enthusiasm is still underpinned by low rates.
Raine & Horne chief executive Angus Raine said the market was always fragmented, right down to suburban sub-markets operating at different price points. He said the country’s hottest market, Sydney, had more than 3 per cent price growth in spring.
“It’s due for a bit of a breather at some time,” he said.
“However, Tuesday’s decision by the RBA to leave the official cash rate on hold, combined with the availability of cheaper five-year fixed rate home loans, have the potential to get more people into the market before the end of 2014 and at the start of next year.”