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Why Interest Rates have no Impact on the Property Market

By Dan Sowden

I have been intrigued to see all the commentary of late surrounding the RBA’s recent decision to reduce the cash rate from 4.25% to 3.75%. A reduction of this size has not been seen since January 2009. So as all the focus now falls to the banks, what will be the outcome for the homeowner?

What I can tell you, is that we have not seen a new stampede of buyers walking into the office saying they want to buy real estate, or on the other hand,  none of our 132 current sellers have called to say ‘wait a moment’ we are now going to put our price up!

The reality is that despite all the debate on interest rates, they have little to no effect on the property market. Let me tell you what does have a greater impact; the local economy.

The majority of the Australian economy is supported by small business. In regional areas the profitability of small business is the essential factor, far larger than any bank interest rate, tax rate, property stamp duty concession or even the first home owner grant.

Small business is the lifeblood of the Australian economy and a mainstay in regional areas. In recent weeks through our business sales team we have seen gross income of some small businesses drop by over 40%, whilst costs have remained steady or even increased. What makes it more difficult is that, in many cases, this shift is not a reflection of the business, but more-so the economy.

To put this into perspective, some businesses will be valued at 3 or 4 times their net return. ie Business ‘X’ returns $100,000, it can be worth between $300,000-400,000. Should turnover drop and costs rise, the business could effectively become worth nothing. All of a sudden, that potential sale of $300-$400k no longer exists, the business owner can no longer pay rent to the landlord and the commercial real estate value then drops considerably.

Although the economy as such is reported on a national front, it’s true relevance is local. Small businesses operating all over australia and the Sunshine Coast are concerned squarely with what is happening in their local economy. Put simply, news on Interest Rates just fuels social media timelines and provides content for journalists

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