Get in whilst rates stay on hold

Posted on 2010-02-03

 

BUYING conditions for commercial property remains favourable thanks to the Reserve Bank’s decision to keep interest rates unchanged at 3.75%. Colliers International research manager Mathew Tiller said the spread has peaked due to high office yields and low interest rates. Record low cash rates and prime grade yields, increasing to as much as 8% in some CBD markets, saw the spread reach a record level of 5% in June 2009. But this has since declined to a spread of 3.5% on the back of three consecutive interest rate rises from October to December 2009 -- this is still well above the 10 year average of 2.1%. Tiller said further interest rate rises in the future combined with increasing demand for commercial properties will substantially reduce this gap. “The low property yields and high interest rates between the beginning of 2007 and the third quarter of 2008 saw the spread turn in favour of the banks with the cost of borrowing higher than the return on the asset. “Nationally CBD office yields held steady over the last half of 2009, with Melbourne witnessing a slight tightening of prime grade yields during Q4 2009, due to increased transactions,” he added. National director of investment sales Jon Chomley said future interest rate increases will make it increasingly difficult to borrow money and fund acquisitions. “The offshore institutions are very interested in investing in the Australian office market, but the high bank margins and regular increases in interest rates have made it difficult for them to debt finance potential acquisitions. “I expects today’s reprieve will play a part in their immediate investment decisions, along with the recent fall in the Australian dollar. The fall in the dollar will assist in lowering the hedging cost for these groups,” Chomley said. Chomley said whilst the availability of finance is starting to free up, borrowers are still looking at 250 basis points over the base borrowing rate, which is a total of 8.5% interest. “Property yields for A Grade stock have tightened from 2009, so the equation is getting more difficult. Now is a time to buy and beat the RBA,” he concluded. Source: PropertyReview.com.au

 

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DISCLAIMER: Every care has been taken to verify the accuracy of the information contained herein, but no warranty is given or implied and prospective purchasers/ tenants are advised to carry out their own investigations. Details herein do not constitute any representation by the vendor. Lessor or the agent and are expressly excluded from any contract.