Lack Of Supply Will Ultimately Drive Prices Higher

The RBA reduced interest rates this week for the first time in 18 months and further reductions are expected in order to boost the wider economy. An increase in the demand for purchasing property as rates fall is imminent.

Although interest rate cuts can help stimulate much needed growth throughout a number of sectors, it will not assist in the supply of new homes being built. The demand versus supply anomaly is set to get worse as official building approvals dropped by 13.6% in September. A lack of supply will not only drive higher property prices but also higher rents, in a rental market already operating at record low vacancy rates.

We are confident investors will turn their attention back into property where capital growth, secure income and increasing yields are a formality. Investors, some of which have had their money tied up in term bank deposits relying on rates to go up or those uncertain of a volatile share market will be first to react.

Another major factor that will put pressure on demand is strong population growth. Many foreigners are lured by very low levels ofunemployment compared to other developed countries as well as the large number of high quality educational institutions, which are operating at full capacity.

As demand continues to outstrip supply, which cannot be rectified in the short term or by rate cuts, there can only be one outcome – Higher prices!