This article is from the Australian Property Journal archive
Australian mortgage holders are breathing a sigh of some relief after interest rates were cut for the first time in more than four years, and market participants suggested this is a “pivotal” moment for the commercial property sector.
Yesterday’s 0.25 percentage point cut shaved the cash rate down to 4.1%. It comes after more than a year of rates being held at 4.35%, and a string of 13 increases since 2022 as the RBA wrestled with runaway inflation.
The cut was widely expected after the last CPI data showed underlying inflation – the RBA’s key inflation metric – had come down again, to 3.2%, but still remained above the RBA’s target band of 2% to 3%.
The big four banks ANZ, Commonwealth Bank, NAB and Westpac all quickly announced that they would pass on the rate cut. Repayments on a $600,000 mortgage will be cut by around $100 per month.
But the RBA poured cold water on homeowners’ hopes there may be greater reprieve coming.
“Monetary policy has been restrictive and will remain so after this reduction in the cash rate,” it said in its post-board meeting statement.
“Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected. Nevertheless, upside and downside risks to the outlook remain.
“If monetary policy is eased too much and too soon, disinflation could stall and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness, the board acknowledges that progress has been made but is cautious about the outlook.”
On the back of the lower-than-expected CPI data in the December quarter, the RBA’s near-term outlook for inflation has been revised a little lower for 2025. It said some of the revision is also based on subdued growth of demand, with an easing of capacity pressures in some parts of the economy and what appears to have been compression of margins for some firms.
“However, the pick-up in GDP growth and tight labour market conditions are expected to keep underlying inflation a little above 2.5% per cent for most of the forecast period.”
The RBA’s forecasts are conditioned on the market implied cash rate path, which had built in 90 basis points of easing by mid-2026.
“Household consumption growth is expected to pick up, which along with growth in public demand is expected to see output growth increase over the coming year. As a result, the unemployment rate is forecast to rise only a little.”
US President Donald Trump’s sweeping tariffs pose challenges to the global outlook, the RBA said, but the scale and incidence of the tariffs and their effects “remain highly uncertain – which may itself delay some investment until the outlook becomes clearer”. It acknowledged economic activity strengthened in China but growth there is still facing structural headwinds.
Tempered result for housing market
The anticipation of a rate cut and resilient values have enticed vendors to the market. New home listings across the capital cities are increasing at the fastest pace in six years, according to Domain, and have hit record high numbers in Sydney, Melbourne and Canberra.
Domain’s data is reflected in SQM Research numbers, which shows total listings grew by 4.5% in January, hitting 243,642 properties – 10.3% higher than a year earlier – and Domain data shows total supply has risen for tenth consecutive months. Together with stretched affordability, that has translated into a slowdown in home price growth, and in some cities, price falls.
Capital Economics Australia and New Zealand economist Abhijit Surya said that although the prospect of imminent rate cuts could temporarily buoy buyer sentiment, “we don’t expect a meaningful rally in the housing market given that affordability is poised to remain stretched by past standards”.
Brad Duggan, the CEO of Australia’s largest homebuilder Metricon, Brad Duggan warned that ongoing uncertainty in interest rates had caused unnecessary hesitation in the market, and without broader structural reforms, affordability pressures could return.
“It’s not just about high interest rates – it’s the uncertainty around them that’s been the real problem,” he said.
“For months, homebuyers have been in limbo, unsure of whether rates would rise further or hold steady. If the RBA had signalled even three months ago that rates had likely peaked, that reassurance – even a qualified one – could have given people the confidence to act earlier rather than waiting for today’s cut.”
Pivotal moment for commercial property
The mood is brighter in the commercial property sphere.
Advise Transact managing directors Mark Wizel and Lewis Tong said the rate cut will “symbolise a start in stabilisation in the commercial property market and will prove to be a pivotal moment in time for its potential impact on the commercial property market”.
“Over the last two years, the market has witnessed a strong decline in property prices which have been party due to interest rate rises as well as government policies surrounding property taxes and the overall market conditions.
“This rate cut will allow many property owners who have had a lot of pressure from holding costs to breath a small sigh of relief.
“The biggest beneficiary of the interest rate cut will be on buyer sentiment for well leased investment properties under $20,000,000,” they said.
Knight Frank’s chief economist Ben Burston echoed the sentiment, saying the RBA’s decision “signals a turning point for commercial property markets nationally, indicating that the devaluation cycle is ending and that we are turning the corner to a new growth cycle”.
“Past cycles have shown that the market responds positively to a shift in the stance of monetary policy, and investors will increasingly come to the view that the Australian market now represents good value with strong prospects for cyclical recovery and long-term growth, although the pace of recovery will differ for different locations and sectors.”
Colliers head of research, Australia Joanne Henderson said the rate cut “may not significantly impact investment feasibility in the near-term, but it marks an important turning point in the real estate cycle”.
“Positive market sentiment is growing, and transactional activity has already been rebounding over the past six months, driven by greater alignment between buyers and vendors on pricing and a rate cut will now amplify positive sentiment.”
