ANZ Bank Says Further Interest Rate Cuts Ahead

Published : 28 September 2015

As we come to the end of the third quarter there appears to be interesting times ahead for Australian real estate.

While we've seen price growth on the country's eastern seaboard, but lower rents for investors as vacancy rates have risen in most capital cities.

Underlying all of this, however, is the question mark over what the Reserve Bank of Australia intends to do about the interest rate.

The Reserve Bank has said it will NOT cut the rate further. But the ANZ bank stuck its neck out last week saying it expects a further two cuts in interest rates next year, to offset the 'economic challenges' in China.

ANZ issued a new interest rate outlook that suggested 50 basis points of interest rate cuts in 2016, starting in February.

ANZ chief economist Warren Hogan said he thought sluggish global growth would force the RBA's hand.

At the end of August he tweeted, "The recognition of softer growth and volatile mkts in China/Asia suggests risks remain tilted to downside'.

But in his opening statement to the House of Representatives Standing Committee on Economics, RBA governor Glenn Stevens said, "What is pretty clear is that the economy is growing, albeit not as fast as we would like, the adjustment to the decline in the terms of trade is well advanced, and non-mining activity is improving rather than deteriorating. If the latter trend continues, it is credible to think that we can achieve better output growth, particularly as we reach the later phases of the decline in mining investment."

ANZ Bank believes the official cash rate will need to be cut to a record-low 1.5 per cent next year, because the "confidence boost" of the recent government leadership change and a lower dollar won't be enough to lower the jobless rate.

It will be interesting to see how new Prime Minister Malcolm Turnbull and new treasurer Scott Morrison will react. Of course, Mr Turnbull's own property portfolio suggests that he is a big believer in real estate - something backed up by the latest survey by management consultants, Capgemini.

The survey shows that high net worth Australians, defined as investors who have more than $US1 million ($1.4 million) in assets outside the family home, have a much higher propensity to invest in property than their global counterparts. Property accounts for 30.8 per cent of wealthy Australians' portfolios, compared with just 21.4 per cent for wealthy Asian investors. Globally, high net worth individuals invest just 18.2 per cent of their portfolios in property.