Mid-year property market and economic update

There is no doubt the past two years have seen Australians navigate some serious hurdles. 

Since April 2022 we have seen the Reserve Bank of Australia (RBA) raise the cash rate from 0.1% to 4.35%¹. It’s the equivalent of a 4,250% increase in interest rates at a time when Australians are also facing a cost of living crunch. 

This is having significant flow-on effects for doctors. 

Let’s take a closer look at key aspects of the economy and property markets, and how medical professionals may be impacted. 

Interest rates – where to from here? 

Interest rates have dominated much of the conversation over the past year.  

June saw the RBA keep the cash rate on ice. The RBA is not due to make another rate call until August, meaning rates are in a holding pattern for a few more weeks. 

The much-touted rate cuts that have been predicted by some economists may not arrive until 2025.  

Just a few months ago, several of our biggest banks were predicting interest rates would start to slide sooner rather than later. Both the Commonwealth Bank² and Westpac³, for instance, were expecting rate cuts as early as September. 

That’s now looking increasingly unlikely. 

The RBA is intent on getting inflation down to 2-3%. It’s currently sitting at 4%⁴, but the RBA⁵ has warned it could be “some time yet” before inflation is nestled in that 2-3% range – the point at which those long-awaited rate cuts may start to kick in. 

Three of the big four banks – the Commonwealth⁶, Westpac⁷ and NAB⁸, now believe rates will head south before year’s end. ANZ doesn’t expect a rate cut before 2025⁹.  

The RBA did add a note of caution in its June meeting that it is “not ruling anything in or out”. So, rate hikes are not out of the question if inflation starts to climb. 

To fix or not? 

The continued uncertainty over interest rates raises the question of whether now is a good time to fix. While fixing may sound counterintuitive if rates are expected to fall, a number of lenders are offering fixed rates that are cheaper than some variable rates at present¹⁰. 

Bear in mind, fixing doesn’t have to be an all-in proposition.  

Doctors can have the equivalent of an each-way bet by splitting their loans across fixed and variable rate components. This can offer the stability of a fixed rate while providing the savings of possible future rate cuts. Your Avant Finance specialist can explain the pros and cons of splitting for your circumstances.  

Residential property defies rate hikes 

The housing market has certainly been the darling of investors over the past year. 

Figures from CoreLogic show property values nationally rose 0.8% in May 2024, the 16th consecutive month of growth. It takes the annual return nationally to 8.3%, however, if we add in rental yields, the returns on residential property over the past year are closer to 12.5%¹¹.  

The total gains can be even stronger depending on location. 

Investors in Perth and Brisbane, for example, have enjoyed 12-month total gains of 27.8% and 21.0% respectively¹².  

CoreLogic notes that for most investors, higher yields will be welcome considering variable interest rates for investor loans are averaging 6.7%¹³.  

Given the high cost of debt, a large portion of leveraged investors are probably recording a cash flow loss despite the substantial rise in rental income. This can make it worth reviewing rental agreements, or address the other side of the ledger – your investment loans. Avant Finance can provide a loan review that will show if your loan(s) continue to be the right choice for your needs.  

Commercial property – the market is mixed 

Many doctors are their own tenants, and with lending rates for commercial property in the order of 7-8% it makes sense for medical professionals to review their current rental agreements to be sure they aren’t left out of pocket. 

As a guide to rental returns, the latest office market report from Jones Lang LaSalle shows the office market is delivering yields averaging around 6.53% nationally¹⁴.     

Doctors who have spare rooms may be able to increase the yield on their commercial property by renting space to allied health professionals, or reviewing lease arrangements where suites are already tenanted. 

For further information on loan interest rates, call Avant Finance on 1300 99 22 08, or request a free consultation with a medical finance specialist.  Avant’s medical finance specialists.