Will interest rate cuts affect property investment?

Wednesday, 14 August 2024

Economists are divided on whether the Reserve Bank will cut the cash rate in tomorrow's update. While some predict a cut due to easing inflation, others expect the bank to hold off for more evidence.

Will Reserve Bank Te Pūtea Matua interest rate cuts make a difference for property investors?

One commercial investor doesn’t think so.

“It doesn’t matter if the OCR drops in the commercial market because the economy is in the toilet,” Auckland property investor Sang Cho said.

“From a commercial point of view, it’s not great.”

Compared to pre-pandemic levels, Cho said rents are still very low with town centres bearing the brunt of low foot traffic and fewer tenants.

“Downtown Auckland is a bit of a ghost town. Tenancies are close to record level lows. Landlords are struggling to find tenants,” he said.

“Kiwis are leaving New Zealand so there are more transient residents. That doesn’t do much for the economy,” he said.

He said ongoing economic challenges to the sector might see investment expectations decrease but said this could take some time.

Commercial property investor Sang Cho said downtown Auckland has become a “ghost town” as landlords struggle to find tenants.

New home buyer Rania Sahioun, however, said a faster rate cut would make a big impact on her mortgage and would go straight into her budget.

Sahioun sold her Christchurch home after relocating to Auckland last year, and bought a house in the North Shore to avoid high rents.

“It would help me a lot now — to get a big mortgage, you have to borrow a lot,” she said.

“The other option was to pay rent which is getting higher. It’s either paying high rent or buying a house.”

The purchase depended on the amount she sold her Christchurch home for, Sahioun said.

Private and commercial property investors say the market is buckling under mounting economic pressure.

“I sold for way lower than I expected because not a lot of people were planning to pay more.”

She said selling a property in Christchurch did not compare to the Auckland market: “Christchurch is way cheaper than Auckland. [Auckland] is about two and a half times as expensive.”

A lower selling price for her Christchurch home meant she couldn’t make a bigger investment in her new home.

“In a normal market, I could borrow more. I put in so many offers and that weren’t accepted.”

Sahioun said buying the Auckland property came only after visiting about 10 open homes every weekend since May and about 10 rejected offers, while buying her first home only took a few weeks.

“There were a lot of houses but the ones we liked were priced very high.”

“Sellers need a certain amount. People want to sell for a good price. We couldn’t meet that,” Sahiouni said.