How will a low AUD affect the property market and renovation costs?

Currently sitting at below USD$0.75, the Australian dollar has reached its lowest point in six years. What are the implications for the Australian property market and renovation costs?

The Australian dollar’s sharp decline may favour residential construction and domestic suppliers, but Australian businesses or renovators that rely heavily on imported construction materials should expect price increases in the short-medium term.

According to analysis by the HIA Economics Group, the depreciating domestic currency will result in more expensive imported goods, which means renovators may want to avoid importing goods from offshore suppliers if they want to cut costs.

The plummeting Australian dollar

In recent months, the Australian dollar has depreciated drastically against currencies of its core trading partners, notably the US dollar. Falling from USD$0.94 in September 2014 to USD$0.73 in November 2015, AUD$1 is now worth just USD$0.72*, which represents a historic low.

Prompted by plummeting commodity prices and low interest rates, the Australian dollar is now considered one of the most volatile global currencies and is expected to sink even lower than its current value of USD$0.72*.

Australian dollar home loans

Source: OxForex, November 2015

Pros and cons of a low Australian dollar

Pros

  • Economic growth: Small businesses benefit from greater economic growth in the domestic sector. Business exporters are ‘winners’ in this situation as they benefit from increased competitiveness that results from a lower exchange rate.
  • Offset commodity crisis: A low Australian dollar against a rising US dollar may offset some of the impacts of the commodity crisis, which is good news for Australians.
  • Superannuation funds: A weaker domestic currency can assist Australian superannuation funds because of the vast amount of global equity held by the majority of funds.

Cons

  • More expensive imports: Overseas purchases and imports become more expensive with a weaker currency, which means that the cost of importing goods for a renovation becomes less affordable.
  • Further rate cuts unlikely: As the Reserve Bank has recently eased monetary policy by slashing the official cash rate to its current 2.0% status, it’s unlikely that these rate cuts will continue with a softening Australian dollar. This means that the cost of borrowing becomes more expensive if interest rates rise. According to a recent finder.com.au survey, nearly 25% of resident rate experts predict a rate rise will occur in the fourth quarter of 2016.
  • Foreign investment: A low dollar means that Australia represents an attractive investment location for US investors. Increased demand from offshore investors may push up property prices and squeeze out domestic buyers.

What has contributed to the depreciating Australian dollar?

Generally, movement in the dollar is influenced by commodity prices and movement in foreign currencies, overseas markets and interest rates.

  • US recovery: As the US economy sweeps through its recovery phase, the value of the Australian dollar weakens.
  • Falling commodity prices: Over the past 12 months, commodity prices have fallen drastically and this has contributed to a lower dollar, particularly as Australia relies heavily on the mining sector.
  • Low cash rate: Currently sitting at 2.0%, the low cash rate has accelerated demand for finance approvals, which has put downward pressure on the Australian dollar.

How will a weaker Australian dollar impact renovation costs?

A 2013 study by Homesafe Group found that fluctuations in the Australian dollar can increase home renovation costs by 5-10% on average. This means that you may need to adjust your budget accordingly to compensate for the higher cost of imported goods, such as electrical fittings and air conditioners.

As imports become relatively expensive compared to domestically produced products, domestic demand will begin to favour local manufacturers, particularly amongst businesses that supply materials to the building industry.

How will a depreciating Australian dollar impact construction activity?

When the dollar is low, our exports become cheaper for foreign countries to buy, but our imports become more expensive.

A weaker dollar will result in higher prices for imported goods, which means that household incomes will suffer in terms of purchasing power for construction inputs. This is likely to weaken demand for home building and renovation activity in the short term.

However, these higher construction costs may be offset by record low interest rates of 2.0% which provide borrowers with increased borrowing capacity as well as greater access to finance, such as construction home loans or personal loans. It’s predicted that there will be increased activity for renovations and new builds throughout the second half of 2015 and throughout 2016.

Construction would suffer from higher costs in the short term but benefit over the medium term.

Need to finance your home renovation? Compare the construction home loans below

Rates last updated May 28th, 2018
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Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.69%
3.69%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).
3.64%
3.67%
$0
$0 p.a.
80%
A mortgage with a competitive variable rate, limited fees and plenty of flexibility.
3.52%
3.53%
$0
$0 p.a.
80%
Go from application to approval in as little as 20 minutes with a variable rate loan from this innovative online lender. Add a 100% offset account for $10 a month.
3.69%
3.69%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.64%
4.03%
$0
$395 p.a.
80%
New borrowers or refinancers from another lender get a discounted rate with this package loan.
3.54%
3.58%
$0
$0 p.a.
80%
Eligible borrowers can get $900 cashback on this loan with a 100% offset account and a redraw facility.
3.64%
3.84%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
Get a 100% offset account to save on interest charges, and pay no application fee.
3.69%
3.71%
$0
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.70%
4.13%
$0
$395 p.a.
90%
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.79%
3.79%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan.
3.96%
3.98%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.79%
4.06%
$0
$20 monthly ($240 p.a.)
80%
Add a Platinum Rewards Mastercard with this package loan and you could earn 150,000 Bendigo reward points (Victoria only, terms and conditions apply).
3.77%
3.81%
$200
$0 p.a.
95%
A simplified mortgage with a low interest rate and a redraw facility.
3.69%
4.06%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.68%
3.69%
$0
$0 p.a.
95%
This variable rate loan offers flexible repayments and a redraw facility. Available with a 5% deposit.
3.49%
4.49%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, Qld and ACT residents only.
3.68%
3.69%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.65%
3.66%
$0
$0 p.a.
80%
This special rate loan comes with no application or ongoing fees, and offers a flexible repayment schedule.
3.69%
4.11%
$0
$395 p.a.
80%
Save on interest with a 100% offset account and save on other ME products with this package loan.
3.69%
4.09%
$0
$395 p.a.
95%
A package loan that offers discounts and a 100% offset account.
3.69%
3.74%
$600
$0 p.a.
80%
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
3.78%
3.78%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.87%
3.87%
$0
$10 monthly ($120 p.a.)
90%
Get Virgin Velocity Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.79%
3.83%
$600
$0 p.a.
80%
A low interest rate loan with limited fees and a redraw facility. Principal and interest repayments only.
3.73%
3.73%
$0
$0 p.a.
80%
Get a 100% offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.89%
3.89%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate property investment loan.
3.62%
3.62%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).
3.59%
3.99%
$0
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
3.69%
3.94%
$0
$248 p.a.
70%
Get a sharp rate and a 100% offset account. Borrowers must have a 30% deposit.
3.99%
5.17%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.85%
4.05%
$0
$350 p.a.
95%
This high LVR fixed rate loan allows you to borrow up to 95% of the value of the property you're buying.
4.15%
4.76%
$600
$0 p.a.
90%
A competitive rate with no ongoing fee and borrow up to 90% LVR.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.74%
4.01%
$395
$0 p.a.
80%
A competitive 3 year fixed rate with no ongoing bank fees.
4.50%
4.82%
$600
$0 p.a.
90%
A variable interest-only loan to fund your investment. Get this loan with a 10% deposit.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
3.74%
3.74%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
4.14%
4.14%
$0
$0 p.a.
80%
Investors pay no application or ongoing fees on this loan from an innovative online lender.
3.89%
4.87%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.69%
4.47%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).
4.09%
4.79%
$0
$395 p.a.
90%
Buy your investment property and set your repayments for the first year. Available with a 10% deposit. Available in QLD, NSW and ACT only.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.
4.24%
4.60%
$0
$0 p.a.
90%
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
3.99%
4.02%
$0
$0 p.a.
80%
Investors can enjoy flexible repayment options and pay no application or ongoing fees.
3.85%
4.82%
$600
$35 monthly ($420 p.a.)
90%
Make up to $10,000 in extra repayments per year and take advantage of a flexible repayment schedule.
4.09%
4.12%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Points on your mortgage (for a limited time, subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.79%
3.80%
$0
$0 p.a.
70%
Keep your LVR at 70% or below and enjoy a special discounted rate. Also, pay no application or ongoing fees.
3.89%
4.96%
$0
$395 p.a.
95%
Refinancers can get $1,500 cashback. Conditions apply. Package your home loan with a Qantas rewards earning Amplify credit card.
3.99%
4.03%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and pay no application or ongoing fees.
3.89%
4.97%
$0
$395 p.a.
95%
Get discounts on a range of Commonwealth Bank products and enjoy the option of fee-free extra repayments during the fixed term.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Borrow up to 95% and lock in a 3 year fixed rate. Access your account via internet and phone banking.
5.29%
5.64%
$995
$15 monthly ($180 p.a.)
65%
Available for former bad credit borrowers who have had a clean credit file for the last 24 months. Available for purchase or refinance.
3.59%
4.42%
$600
$0 p.a.
95%
Get a 1% discount for the first two years of your loan and pay no application or ongoing fees.
3.64%
3.65%
$0
$0 p.a.
95%
Family pledge option available. Get a special discount off Bank of Melbourne's basic variable rate.
3.89%
4.88%
$0
$395 p.a.
95%
Refinance from your existing loan and get a $1,250 rebate. Terms and conditions apply. Plus get discounts on a range of Westpac products.

Compare up to 4 providers

How can I avoid higher renovation costs?

If a large proportion of your building materials are sourced from overseas, it may be a good idea to reconsider your choice of supplier and favour local businesses. Supporting Australian businesses not only stimulates the Australian economy by creating jobs, it could also allow you to keep your home renovation costs down by 5-10%.

What does a lower Australian dollar mean for the property market?

  • More foreign investment: A lower dollar makes Australian property more attractive to offshore investors. For instance, when the Australian dollar is on par with the US dollar, a $450,000 property costs a US investor $450,000. The same property would cost just $315,000 if AUD$1 is worth just USD$0.70.
  • Rising prices in tourist areas: A lower dollar makes Australia more attractive to both international and domestic tourists, which can provide an injection to tourist areas and potentially push up property prices in areas such as Cairns and the Gold Coast.
  • Property prices near mining areas: A lower dollar is likely to have an adverse affect on property prices near mining downs due to foreclosures.

What’s in store for the Australian dollar?

A weaker domestic currency may be here to stay, so what are experts tipping the currency will be in the near future?

A recent Bloomberg survey forecasts that the Australian dollar will remain around USD$0.75 through to the end of 2015 and may lift slightly to USD$0.77 in the final quarter of 2016.

The expert panel from our recent finder.com.au survey were divided about future prospects for the Australian dollar. The majority (76%) predicted that it will fall below USD$0.65 this cycle, but they were torn about when the currency will reach its lowest value.

With just 14% of respondents believing the dollar will hit its lowest value by the end of 2015, the majority (72%) expect this to happen in 2016. The remaining 14% believe that the dollar will fall to its lowest point beyond 2016.

Our money expert, Michelle Hutchison, says that the domestic currency is likely to depreciate further before it recovers.

“It’s daunting to think just last year in July 2014 the Australian dollar was buying almost USD$0.95 and we were trading at parity with the United States from June 2012 to May 2013. Fast forward to September 2015 and the overwhelming majority of experts (86%) in our latest survey predict the Aussie dollar will fall to USD$0.70 by the end of this calendar year, with over 2 in 5 believing it will plummet further – to USD$0.65 – by year’s end. This can have a significant knock-on effect for Australians, especially those heading overseas this summer.

“International money transfers and overseas property investment are also likely to be adversely affected,” says Hutchison. “Whether you’re sending money overseas, buying anything offshore, travelling abroad or have a home loan, keep track of both movements to the Aussie dollar and interest rates as next year is set to get tougher.”

While fluctuations in the Australian dollar may have an impact on the property market and renovation costs, it’s important to note that other economic factors also play a part, including levels of household debt, interest rates, unemployment, consumer confidence and industry regulations.

*This exchange rate was obtained in January 2016 and may be subject to fluctuation.

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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Important Information*
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupied Variable P&I Rate — borrowing $700,000 or more

Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, Qld and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)

New borrowers or refinancers from another lender get a discounted rate with this package loan.

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