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WA Property Market Update May 2022
In our last WA property market update, we opened by highlighting the difference a month can make – lifted COVID restrictions, open borders, and the announcement of a federal election. Well, it’s safe to say that the passing of another month has brought with it further noteworthy changes. This time, it’s interest rates. On 3 May 2022, the Reserve Bank of Australia (RBA) announced a cash rate increase of 25 basis points, bringing it up to 0.35%. Higher-than-expected inflation fuelled by supply chain issues, international events and local demand was the prompt for the rise, and in the fullness of time we will better understand the impact of rate rises on homeowners and the retail sector. However, even at this early stage we can predict their effect, mixed with other economic conditions and pressures, on these sectors. Welcome to the WA Property Market Update for May 2022.
Residential Property Market Update May 2022
For those lenders that have passed on the recent rate rise, and those that do the same for the further increases we’ll likely see through 2022 and into 2023, households and investors may need to reassess their budgets and review their loans to ensure they are still getting the best deal available to them. When rates go up further and get to a stage where they’re in line with inflation, it will become even more important that homeowners and investors are in a loan product that is suitable, and repayments are manageable.
Looking beyond rate rises for the moment, the ongoing strain on the construction industry continues to impact the residential property market in WA. The generous measures brought in by the State and Federal governments to boost construction activities and reduce unemployment have had the unfortunate side-effect of increasing demand on the industry to such a level that cost and time blow-outs are now making construction unfeasible for many projects. Skilled worker shortages have been compounded by a lack of migration into the state during the pandemic, and material supply issues have only made things more difficult. Per-square-metre costs for even low and medium specification homes have increased by around 25%.
Renovation costs and time issues have also impacted the market for homes on the market that require upgrades. Would-be renovators are seeing the potential upsides of renovating a home for re-sale or investment potential being cut back so far that for many, it simply doesn’t make financial sense at this time. This has put upward pressure on newly built homes with modern specifications, with sale prices on some examples being much higher than anticipated. Relief from the current situation doesn’t appear to be coming any time soon, however once the backlog clears there should be respite for customers waiting on construction projects.
Retail Property Market Update May 2022
WA’s strong economic performance through the pandemic has meant that retailers in the state haven’t been negatively impacted to quite the same extent as those in other states. Some even found themselves experiencing sales records in the last year or so. The construction of new retail space in Perth’s outer suburbs has proven appealing to investors, especially those from the Eastern states. What may be of some concern in the coming months, however, is the impact of rate rises on spending. It stands to reason that if the cost of living continues to increase, and interest rate rises follow their predicted trajectory, discretional spending will likely make way.
Put simply, less surplus cash in the pockets of WA consumers means that retailers who aren’t offering the essentials may feel the impact of lower sales. The knock-on effect is that retailers’ financial security may be diminished, as will the yield on rental assets in the long term. While these concerns haven’t yet come into play, they are certainly worth keeping in mind as interest rates change in the coming year or two.
The impact of rising interest rates may not be immediately apparent to all homeowners, investors, and business owners, however as the situation develops there may be increased pressure on repayments. The WA Property market will continue to be in a state of change through May 2022 and beyond – the key to keeping on top of things is ensuring that your finance arrangements are right for you, your current situation, and your financial goals. If you’d like a review of your loans, get in touch with the Finance team at McKinley Plowman on 08 9301 2200, or visit our website.
Data from: HTW Month in Review May 2022
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