The Reserve Bank has signalled its recent aggressive approach to interest rates may be nearing an end, saying official interest rates are not too far away from what policy-makers consider to be “normal” levels.

RBA assistant governor Guy Debelle has told a Senate inquiry into finance for small business, the economy has been recovering well and the Reserve Bank is trying to ensure the current pace of growth can be sustained.

Last week, the Reserve Bank raised the official cash rate to 4.25 per cent, marking its fifth rate rise since last October.

Dr Debelle says at that current setting, the cash rate is closer to average levels.

“We are deciding that the situation where we needed historically low interest rates is no longer necessary, so we’re moving back to something around about average levels, which is not far away from where we are at the moment,” he said.

When asked by the South Australian Senator Annette Hurley whether the Reserve Bank was trying to rein in demand by raising interest rates, Dr Debelle said that was not the case.

“We’re not trying to depress demand, we’re trying to make it grow at a sustainable pace,” he said.

The central bank has previously said that normal or average rates would be somewhere in the vicinity of 4.25 to 4.75 per cent.

Source: ABC Online

The Age reports: DESPITE another interest rate rise, Melbourne’s property market is back in action after Easter, having recorded its strongest opening quarter on record.

The weekend’s clearance rate reached 85 per cent, from the 488 auctions reported.

JPP Buyer Advocates’s Catherine Cashmore went to five auctions at the weekend and said all the properties at the top end of the price range sold.

A one-bedroom South Yarra apartment at 4/34 Tivoli Road was on the market at $450,000, before six bidders pushed the selling price to $675,000, more than $200,000 past the reserve.

Ms Cashmore said the buyer was the next-door neighbour who intended to knock down the walls between the two apartments. ”But then there was the other bidder also bidding at that level and that’s what you’ve got to be worried about - people will dig in their pockets deeper when they want to win the game.”

A renovated property at 1/15 Ashby Grove in Eaglemont was quoted in the low $500,000s and sold for $645,000.

The two-bedroom residence at 149 Lennox Street, Richmond, went on the market at $760,000, and sold for $876,000, while 5/199 Lennox Street went for $510,000.

Ms Cashmore said interest rate rises were going to have little effect on a housing market where the real problem was a lack of stock for the booming population.

Noel Jones group chairman Adrian Jones believed the market was as strong as ever, even after the latest interest rate increase.

He said about six bidders competed for 54 Albion Road, Box Hill, which was on the market at $705,000, and sold for $849,000. ”For a two-bedroom weatherboard home in Box Hill, that’s just massive.”

Mr Jones said a Camberwell home backing a railway line, at 1 Westbourne Grove, sold for $1.1 million. ”Camberwell is just so popular, people will pay almost any price to get into the market.”

But buyers’ advocate Peter Rogozik said: ”I think the rapid price increase we’ve seen since mid-2009 has come to an end and what we’ll see in the future is more gradual price increases.”

He said bidding for the deceased estate at 36 Empress Avenue, Kingsville, opened at $300,000 and with three bidders and a reserve of $550,000. The property was passed in for $497,500.

”It was quite an interesting result … there’s a fair gap between what it was passed in on and the reserve,” he said.

REIV chief executive Enzo Raimondo said compared with the past few years, listings for the next few weeks were very strong, almost double what they were this time last year. ”Buyers have choice but will face competition,” he said.

*Melbourne records strongest opening quarter on record.

* The weekend’s clearance rate reached 85 per cent.

* REIV chief executive Enzo Raimondo says listings for the next few weeks are almost double what they were this time last year.

Source: The Age, 12/04/2010

AUSTRALIA is set to experience the slowest economic growth in seven years which would make the case for a 50 basis point interest rate cut in September, a survey shows.

The Westpac-Melbourne Institute leading index, which predicts the likely pace of economic growth three to nine months into the future, showed an annualised growth pace of 2 per cent in June.

The reading was at the lowest point since July 2001.

The leading index has been below the long-term average of 3.9 per cent since February.

Westpac chief economist Bill Evans said global factors were largely responsible for the likely slowdown in economic growth.

“The slowdown in the growth rate of the index can be mainly attributed to the sharp fall in the share market; tighter liquidity as represented by money supply; weak dwelling approvals and softer data for US industrial production,” he said.

 Mr Evans said high borrowing costs would make a 50 basis point official interest rate cut in September more likely.

“With rates well into the contractionary zone and global liquidity conditions deteriorating there is a strong case for a larger first cut of 0.5 per cent,” he said.

“That seems a more effective strategy than current market expectations of two consecutive 0.25 per cent moves.”

The Reserve Bank left interest rates on hold at 7.25 per cent in August for the fifth month in a row.

The minutes of that August 5 board meeting, released yesterday, suggested the RBA expected economic growth to have slowed down in the June quarter, with low growth also possible in the September quarter.

The RBA last cut interest rates in December 2001.

Source: news.com.au

SYDNEY: With Australia expected to cut interest rates, beleaguered property trusts could see their rental yields become more attractive, but the bad news that has battered the sector may rumble on.

Australia’s highly leveraged real estate investment trusts, or REITs, have suffered as the global credit crunch lifted borrowing rates and raised questions about a practice of using nonrental income to increase dividend payments.

GPT Group, Mirvac Group and Babcock & Brown - which have listed REITs - have issued profit warnings and seen their share prices dive.

Centro Properties Group set off the bearish mood when concerns about debt refinancing emerged early this year.

The S&P/ASX 200 REIT index has lost 42 percent since a peak last October, but has picked up more than 20 percent since mid-July.

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 Some analysts say the sector is still 20 percent undervalued, and rate cuts would ease pressure on the securities, which pay most of their rent to investors as dividends.

After more than a decade of expansion backed by a commodities boom as the nation sold iron ore and copper to China, the Australian economy is now seeing signs of weakness, with consumer spending sapped by rising fuel and mortgage costs.

The Reserve Bank of Australia said that it would not wait for inflation to fall before lowering interest rates, giving the clearest indication that it would ease monetary policy next month.

“As the RBA begins the easing cycle, this will make REITs more attractive from a yield perspective,” said a Merrill Lynch analyst, John  Kim.

The weighted average dividend yield for Australian REITs is 7.8 percent, slightly above the central bank’s cash target rate of 7.25 percent and compared with a 10-year government bond yield of 5.8 percent.

“The large cap A-REITs will benefit the most, as equity and global property investors revisit the sector, now that one of the major headwinds against the industry appears to be headed for a reversal,” Kim added.

During the last two periods of falling interest rates, in 1996 to 1998 and in 2001, REIT prices rose 6.7 percent in the following 12 months, according to UBS.

UBS said that groups active in residential development, or which have large domestic floating debt exposure, should benefit most, pointing to Stockland Group and Mirvac as examples.

Affordability has become an issue for Australia’s residential market of nearly 3 trillion Australian dollars. Home prices have jumped fivefold in 20 years, while household income has only doubled, so lower borrowing costs should offer homebuyers some relief.

But even if the central bank cuts its policy rate, lenders could still be reluctant to adjust their views of risk for property trusts, said Clement Chong, vice president and senior analyst for Moody’s Investors Service.

In May, Moody’s said it maintained a stable outlook on the ratings of Australian REITs over the next 12 months, but warned that a challenging credit environment and softening property fundamentals in some overseas markets were risks.

Dugald Higgins, associate director for Property Investment Research, said that a deteriorating global economy could hurt REIT earnings, as commercial property values and rents suffered in Australia and the United States, where many Australian trusts own shopping malls, offices and warehouses.

“It will only take a piece of bad news to hit the market, and I imagine we will see a lot of people jump ship again,” Higgins said. “Valuations, fundamentals are still pretty much out the window and have been in the last six months and I don’t see that changing a lot throughout the rest of this year.”

Babcock & Brown, which has listed real estate vehicles, has seen its share prices tumble after a profit warning due partly to revaluation of real estate assets. Babcock & Brown shares have sunk to below 4 Australian dollars, or $3.47, from almost 35 dollars in June 2007.

Office vacancy rates in Australia crept higher in July, prompting property executives to predict the global credit crunch would take its toll on rents and the value of buildings.

As the market braces for earnings announcements from REITs, investors will watch property valuations to see whether the trusts apply mark-to-market accounting.

The practice, which has gained ground in Britain, relies on indexes rather than appraisals of individual buildings, and allows companies to adjust their asset valuations faster.

“Typically in Australia, we’ve still got six monthly valuations,” said Tim Nation, director of international investment at DTZ. “It just inherently slows down the ability for asset values to reflect where the market thinks the pricing should be.”

Source:International Herald Tribune by Reuters,  By Eriko Amaha ReutersPublished: August 20, 2008

The REIV supports the recent calls by the Federal Treasurer for the private banks and other financial institutions to immediately pass on future reductions in interest rates by the Reserve Bank to mortgage holders.

Over the past six years the Reserve Bank has lifted the official interest rate a total of twelve times taking the rate from 4.25 per cent in April 2002 to the current rate of 7.25 per cent. In recent times the private banks have also increased interest rates in addition to the RBA increases.

As a result of the increases the standard comparison rate is now between 9 and 10 per cent - double the rate of six years ago.

The interest rate increases have required many borrowers to make changes to household budgets and spending patterns. These rising payments have also coincided with fluctuating petrol prices and rising grocery prices. These factors combined have contributed to a softening of the housing market with a reduction in the number of sales and a stabilisation of price throughout the first half of 2008.

Many economic indicators, including the REIV’s June Quarter data show that the Reserve Bank’s monetary policy decisions are taking into affect, the result being an economic slowdown.

A reduction in the official cash rate, if passed on to mortgage holders by private banks and other financial institutions , would help alleviate some of the financial stress households are experiencing and provide mortgage holders and future first home buyers with some respite.

A lower interest rate would also help stimulate investment in the private rental market. This would then help to provide prospective tenants with more choice and also stabilise rents

Source: REIV