Block interest rate noise for property: Quay

Yasmine Raso

Senior Journalist, Financial Newswire

22 March 2023

A global real estate fund manager has warned Australians looking to purchase property to avoid getting distracted by the tension surrounding monetary policy and rising interest rates.

Chris Bedingfield, Principal and Portfolio Manager at Quay Global Investors, said while it could be the right time to buy for long-term homeowners and investors since the market is pricing at a discount, the Australian residential property market has seen its “best price gains… without the influence of interest rate movements”.

This comes as the market shows signs it is “bottoming”, which Bedingfield said is “not surprising” despite the belief that “higher or lower interest rates drive the returns of residential property”.

“The primary transmission mechanism of monetary policy is almost always via the housing market, which heightens uncertainty and risk for those looking to purchase property,” he said.

“We believe part of the recent recovery in dwelling values is driven by lack of available stock on market, as FOMO has been replaced by FORA, or ‘fear of renting again’.

“Despite the cash squeeze from higher interest rates, owners are likely to hold onto their homes to avoid the current brutal national rental squeeze.”

Bedingfield said prospective purchasers shouldn’t primarily consider rising interest rates and falling prices when it comes to valuing and buying property but should rather ensure they purchase below the cost to build.

“We believe that if you can buy a building at a discount to the cost to build, then you will be the first to make money once the development cycle kicks off again,” he said.

“As the population begins to grow again, property prices will have to get back up to building replacement costs, as this is the only way we will see developers start building again in a meaningful way.

“As long as it is sensibly financed and it’s your principal place of residence, I think it’s one of the better places to have your capital, but you do need to see it as a long-term investment.”

Bedingfield also warned against buying into the hysteria around the so-called “fixed rate mortgage cliff” set to occur within the coming months.

“The RBA estimates 34% of mortgages are currently fixed, half of which are due to reprice this year. That sounds pretty bad,” he said.

“However, the statement implies 66% of mortgages are floating and owners are already coping with higher rates.  And despite this realty, stock on market remains still very low. Anyone expecting a surge in supply as fixed rates expire this year is underestimating the impact of FORA.”