Interest rates

Real estate experts predict apartment sales will rise as interest rates rise

As interest rates continue to rise, some property experts are predicting an increase in apartment sales across Australia due to the large gap between the median price of houses and units.

The Reserve Bank last week raised the target cash rate by 50 basis points to 1.35%.

It also increased the interest rate on foreign exchange settlement balances by 50 basis points to 1.25%.

James Kirkland, director of sales at national real estate agency Upside Realty, told NCA NewsWire that buyers’ borrowing power was being reduced and it was being felt in the real estate market.

Mr Kirkland said he expected lifestyle apartments, which offered green space and amenities, to be particularly seen as a viable alternative for those who could no longer afford a home.

“Since March 2020, unit values ​​in the capital have risen 9.8%, compared to 24.7% for homes, making it a more affordable option for people,” he said.

Camera iconLifestyle apartments, which offer green spaces and amenities, can be a viable alternative for those who cannot afford a home. NCA NewsWire / Nikki Short Credit: News Corp Australia

“The median price gap between houses and apartments has been widening for some time now and with the latest interest rate hike, some buyers will need to reassess their budgets.

“Looking at what they can get for their money, we expect to see many apartments reconsider because in some cases they can get better value for money.”

Mr Kirkland said family-friendly suburban apartments were in greatest demand.

“Complexes that offer amenities like swimming pools, gyms, movie theaters and have lots of greenery, open spaces and common areas will be the most popular with buyers,” he said.

“It may mean for some people that in order to stay in the suburb of their choice, they may just need to consider an apartment now instead of a house.”

Mr Kirkland said the median house price in Australia’s capital cities combined was $937,101, while the median equivalent unit price was $643,795.

“But in many capitals there is a much bigger gap, like in Sydney where it will cost you almost twice as much to buy a house compared to a unit,” he said.

“House prices have risen six times faster than unit prices over the past two years.”

Camera iconFamily-friendly suburban apartments are most in demand. NCA NewsWire/Kelly Barnes Credit: News Corp Australia

Mr Kirkland said the high cost of construction would also be a factor for potential buyers.

“When faced with a home that needs work versus an apartment with everything already taken care of, some buyers may not be willing to take the risk of going out of their way for a renovation,” he said. declared.

But that’s a different story out west, where the real estate market has been in stark contrast to the east coast during the pandemic.

Real Estate Institute of Western Australia chairman Damian Collins told NCA NewsWire there was no doubt that as prices rose and people “felt the pressure” they would have to make a choice on the place to live.

“That’s why we’ve seen over the last five to 10 years flats make up more than half of all new build in Sydney because real estate is so expensive,” he said.

“I think Perth is in the early stages of much greater demand for apartments, but we are still very affordable for houses at the moment. Our median price is the lowest of all major capitals.

Camera iconIt’s a different story in WA where the real estate market contrasts sharply with the east coast. NCA NewsWire/David Swift Credit: News Corp Australia

Mr Collins said that for people living in WA flats it was more of a lifestyle choice than an affordability issue.

“Generally across all areas in Perth the apartment market has been driven by lifestyle cuts and young people wanting this lockdown and leaving the lifestyle,” he said.

“As interest rates go up, we might see a little change to that, but I don’t think the cost of living and affordability will have a huge impact on the apartment market, at least in the short term, because overall we remain very, very affordable.

Mr Collins said if rising interest rates could ‘stifle’ the market, most people would be fine.

“Any rise in interest rates is going to have some level of damping in the market; these are just simple calculations,” he said.

“It’s going to impact what people can afford to buy, it’s going to impact what people spend elsewhere outside of their home loan.

“But what history has shown is that the home mortgage in particular is one of the last things people cut – they’re going to cut lifestyle, they’re going to cut vacations, they’re going to cut restaurants, they will cut other things in life.”

Real estate pictures
Camera iconMr Collins said that while rising interest rates could “stifle” the market, most people would be fine. Ian Currie. Credit: News Corp Australia

According to the major banks, many people are ahead of their repayments, so they have a buffer.

Mr Collins said that even if interest rates rose to 5% it should not be too much of a burden for most people, but he doubted it would get that high.

“I don’t think rates are going to rise as high as some of the markets expect just because it will have a serious impact, especially now on the big cities of Sydney and Melbourne, where their relative mortgage levels are much higher. high, especially relative to their income,” he said.

“Certainly in the WA context, yes, some people are going to suffer. It will always happen. I think the vast majority of people will be able to cope.

M Collins noted that WA was experiencing a housing shortage and a low rental vacancy rate.

“We don’t have enough homes to sell, the economy is very, very strong, the demand is still there, population growth is now coming back from international migration, albeit slowly,” he said.

“I’m still confident that we’re going to see modest price growth this year, but also next year as well.”