Investors will be wary despite rates cut, say experts
Investors are also expected to seek out higher-yielding bricks-and-mortar assets.
CBRE's head of research, Stephen McNabb, said lower rates meant returns on cash and related investments would decline. "This will keep high-yielding assets on the radar of fund managers," he said. "However, rates have been cut because growth is slow and indicators suggest little upside.
"That mix means that investors will still be cautious, particularly in relation to secondary assets. A key issue is the lack of appetite and capacity to borrow, particularly amongst the consumer sector, the backbone of growth in the economy."
Mr McNabb said a sluggish labour market and income growth would keep a broader cap on growth. "We do expect growth to respond to both lower rates and the weaker Australia dollar, although this will represent a slow improvement rather than a sharp uplift and is unlikely to be an instilled trajectory until later in 2014," he said.
Mark Courtney, Colliers International's research director, called the cut a "bold" move that sent a clear signal the Australian economy was in transition.
"The drop in interest rates, however, may be regarded as a positive for the property market," he said. "When cheaper money is available, it follows that there will be more investment in property. This also applies to the commercial property market - a drop in the cash rate should also be a stimulus for this sector, again, if banks pass on the rate reduction."
Mr Courtney said in this sphere private investors would be the big beneficiaries of a drop in the cash rate.
Frequently Asked Questions about this Article…
The article says the retail and residential property sectors are the main beneficiaries of the 25-basis point cut to 2.5%. Investors are also expected to look for higher-yielding bricks-and-mortar assets.
According to CBRE's head of research Stephen McNabb, lower rates will reduce returns on cash and related investments, which should keep high-yielding assets on fund managers' radar as they seek better yield.
Yes. McNabb notes that because rates were cut due to slow growth and limited upside in indicators, investors are likely to remain cautious—especially regarding secondary assets—rather than rush into riskier plays.
The article highlights a key issue: a lack of appetite and capacity to borrow among the consumer sector. Since consumers are the backbone of growth, weak borrowing capacity can limit the stimulative impact of lower rates.
Mark Courtney called the cut a 'bold' move signaling the economy is in transition. He said cheaper money could be positive for the property market, as more investment tends to follow when borrowing costs fall.
Not automatically. The article points out the commercial property market could see a stimulus from a lower cash rate, but that depends on whether banks pass on the rate reduction to borrowers.
McNabb expects growth to respond to both lower rates and a weaker Australia dollar, but he says this will be a slow improvement rather than a sharp uplift, with a firmer trajectory unlikely until later in 2014.
Based on the article, investors should watch whether banks pass on the rate cut, demand for high-yielding bricks-and-mortar assets, conditions in the labour market and income growth, and signs of improved consumer borrowing—since these will influence how much the rate cut boosts property and economic activity.
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