Rate cut to underpin patchy Sydney market

So the RBA decided to cut the cash rate by 0.25 percentage points this week to an astonishingly low 1.5 per cent.
With last week’s inflation figures of just one per cent over the year, it probably didn’t have much choice.
In an all-too-common turn of events, which (oddly) no one seems to question that much, the banks quickly announced they were keeping a little bit for themselves.
The major lenders are passing on between 0.10 to 0.14 percentage points of the cut, which does seem to make the RBA’s job harder when they’re trying to stimulate the economy.
But what will the latest historically low interest rate environment mean for the Sydney property market?
The latest Domain Group figures showed that Sydney median house prices up 2.4 per cent over the June quarter to be back above $1 million. Unit prices also grew by 0.6 per cent to about $669,000.
But the figures don’t tell the real story in our opinion. That’s because the Sydney market remains quite patchy and has become a tale of multiple markets. Sure some areas are recording clearance rates above 80 per cent, but others are struggling to clear 50 per cent at auction.
This is especially true in the western corridors which were probably a bit over-cooked during the recent boom years.
A year or so ago, agents in the west were often getting 50-plus parties at open homes, now they’re getting about eight, and it’s mainly investors who are the ones missing in action.
With strong price growth, the numbers just aren’t as attractive as they were or in many cases don’t stack up at all.
The B-word (boom) isn’t in the headlines as much these days, which is not a bad thing, but is probably serving to reduce consumer confidence in the market.
We’re not saying that people aren’t buying in Sydney’s western corridor because there’s still demand for new house and land product from both owner-occupiers and investors. It’s the established stock that is dragging the chain in our opinion.
But while parts of western Sydney may be struggling, property investment still makes solid investment sense because money is so cheap.
With many people probably now able to access variable interest rates that start with the number three, you really have to make property hay while the rate sun shines.
Some people are concerned with the potential for rates to rise – and of course eventually they will – but we’re not seeing any signs of that happening anytime soon given the national and global economies are still a bit wobbly.
The Sydney market is likely to keep chugging along this year however we’re actually haven’t been buying as much there for a few years already. That’s because we believe there are better areas to be found outside of the Harbour City.
Certain parts of Brisbane are attractive, as are parts of Victoria. Adelaide, too, is showing some life. However, we do have concerns about new unit oversupply in parts of inner-city Brisbane, Sydney and Victoria.
One of the keys to successful property investment is to look outside your own back yard and learn not to be geographically-based.
And, regardless of where you invest, all investors must run their numbers on average returns and not on short-term peaks, which just aren’t sustainable.
At the end of the day, property investment is about ignoring the short-term ups and downs and concentrating on the long-term view.
A famous quote from Warren Buffett is: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
Trees take a long time to grow and so do successful property portfolios across a variety of locations.