Is one rate cut enough for confidence to return?

WITH GARETH KENT, DIRECTOR PRESTON ROWE PATERSON

With the Reserve Bank of Australia’s (RBA) announcement on Tuesday of a 0.25 per cent rate cut, we got what we needed.

 

And the major banks have come to the party by passing on the cut in full. But you get the sense that this rate cut was hard won and like an arranged marriage, Ms Bullock was dragged to the altar by political pressure rather than a clear economic perspective. Hence, don’t bank on another one in April.

The question is, will this trigger some return of confidence in the market? Will we see an uptick in demand? The average saving per household from the rate cut is about $120 per month for an average $750,000 mortgage. To put that in perspective, two boxes of cereal, milk, eggs and a loaf of bread from Woolworths or Coles. $120 doesn’t buy you much these days. Perhaps for those on the precipice of the bank’s affordability calculator, this may get that finance approval, but this small percentage cut will have minimal material impact on the financial position of most families.

The more significant effect on housing markets will be the confidence injection received from the start of the rate-cutting cycle. House prices across our region are down an average of -3.4% year on year and fell again in December. Some return of confidence over the next few months is more likely to enable prices to normalise rather than add any pressure to pricing.

Another announcement that will have next to no impact locally is the federal Labor Government introducing a two-year ban on foreign investors purchasing property. In a market that is already lacking demand, with average selling days ballooning out and falling house prices, this will have no impact on our local market.

The more important announcement however, is the Victorian Premier’s statement that their government employees will be cut by up to 5 per cent (some 3,000 people). Considering that Geelong has a high reliance on government agencies, such as TAC and WorkSafe, and that many in this workforce are on generous work-from-home arrangements and live in the Geelong region, we could be in for a bit of a shock. Perhaps the state government could consider providing job security for those employees willing to return to the office at least three days a week. This would benefit small businesses throughout both Melbourne and Geelong CBDs, perhaps offsetting some of the job losses? I was very disappointed to learn that the City of Greater Geelong’s new EBA included a provision to allow its workers to work from home. In my view, our council needs to support the city, and they cannot do that working from home. If we have any hope of reviving our CBD, it will be on the back of local council and state government workers returning to the office at least three days per week. It seems we continue to have a lack of leadership from our executives charged with this negotiation; no-one wants to be the first to make the hard call.

Although the market is very quiet, some heroes have been in our midst. I speak of the MOTIF residential apartment development currently under construction on the waterfront. RPM agents have confirmed that the property has reached 60 per cent in pre-sales, and the construction itself is now at roof level and is expected to be completed in early 2025. This development’s success is essential to the other 16 residential developments permitted to be built in the Geelong CBD. MOTIF is proving a substantial market exists for apartments if the developers are willing to start!