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Cash rate contains good news for commercial

By Greg Bell

As the Reserve Bank of Australia (RBA) board gathers at the start of each month, economists across the country hold their breath and make their predictions over whether or not the official cash rate (OCR) will be changed. For example, Greg Jericho wrote in The Guardian on 6 April that all signs pointed towards a cut to the OCR, which he thought could foster economic growth, but also run the risk of a housing bubble.

In the end, the RBA has made no change to the cash rate, deciding to leave it steady at 2.25 per cent for April. This does not rule out further cuts down the line, but there are several interesting points in the monetary policy statement that will be pertinent for those interested in commercial real estate. 

Business boosts burst forward

While lending to residential investors has been a main driver of credit in the real estate economy over the last year, highlighted in the skyrocketing property prices in Sydney, there was a shift recorded by the RBA in this latest statement. The cut to the OCR back in February saw interest rates drop, with Tim Lawless of RP Data noting that interest rates are now at their lowest point since 1968. If that doesn't have investors' and buyers' ears pricking up, then we're not sure what will.

Since the rate drop, however, the residential surge has settled, replaced by a new source of growth: Business lending. The RBA Governor Glenn Stevens' statement on the cash rate from 7 April noted that this was strengthening of late, at the same time as prices for commercial property are rising. The low interest rate environment was cited as a driving force behind this.

Clearly, commercial real estate growth is experiencing a hot streak at the moment, which should have those with an eye on Surfers Paradise very intrigued. 

Further cuts could be on the horizon

These good conditions aren't necessarily as good as it gets, either. Mr Jericho's article for The Guardian was not the only source of speculation for more cash rate cuts, with Mr Stevens himself noting that this change could be around the corner. 

"Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target," he said. Mr Jericho mentions a tipping point for further cuts might not be far away, so keeping an eye on this is important for all real estate buyers. 

Global conditions looking good 

Of course, anyone considering large-scale commercial developments across Surfers Paradise and beyond will want to keep an eye on global conditions, which Mr Stevens states are currently looking strong. The Australian dollar has fallen against the US currency, but this was not as pronounced when it comes to other currencies. 

Falling commodity prices point to the national currency declining further, but this is not necessarily a bad thing. Mr Stevens notes that this depreciation will likely be good for balanced economic growth, which can lead to better outcomes for all. Moreover, a lower Australian dollar could mean foreign investment spurs high levels of growth in the area. This is exemplified in the recent breaking ground on the Wanda Ridong Jewel, a three tower development at the Gold Coast shoreline.

Current stability affords people security regarding investment, while a lower OCR down the line could make investment even more attractive. Once the conditions are primed for a purchase, the next step is finding the ideal commercial real estate for business. Contacting a local Ray White team is an ideal first step in this process, as it taps into a wealth of insider knowledge and contacts. 

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