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68% of experts say units are a “risky investment”, divided on responsible lending

Apartment blocks, residential buildings, suburb, aerial photography Sydney Australia

Investors might be wise to avoid buying a unit in a capital city, according to new research from Finder's RBA Cash Rate Survey.

In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.

While all experts (40/40) correctly predicted that the cash rate would hold at 0.10%, the majority who weighed in on property investment believe that houses are not a risky investment.

This is especially true in Brisbane where only 14% (3) see house investment as uncertain.

The same can't be said for units. More than two-thirds of participants (68%, 15) agreed that units in Melbourne and Brisbane are a risky investment, with Sydney not far behind (61%, 14).

City% who believe units are a risky investment% who believe houses are a risky investment
Melbourne68% (15)24% (5)
Brisbane68% (15)14% (3)
Sydney61% (14)23% (5)
Perth60% (12)30% (6)
Adelaide53% (10)15% (3)

Source: Finder RBA Cash Rate Survey (*Predictions from 19-23 economists)

Graham Cooke, Head of Consumer Research at Finder, said that despite the property boom, investors would be wise to heed the warning of the experts and economists.

"Property prices are on an upward trajectory in a big way.

"Not only has the median house price in Sydney passed $1 million for the first time since 2017, but owner-occupier borrowing hit $20 million for the first time in history in December.

Owner Occupier Borrowing graph – 2018-2020

"Despite this boom, rent prices have struggled.

"There are a number of factors for this, including millions of renters who lost jobs or had hours reduced, and a lack of long-term international visitors and students.

"If you have a deposit saved and are deciding between investing in a unit or a house, it's worth keeping this outlook in mind," Cooke said.

Experts split on the relaxation of responsible lending measures

A little over half of respondents (16, 55%) agree that the removal of responsible lending regulations could lead to an unstable level of household debt across the country.

Those who worry cite Australians' complicated relationship with debt and other examples from around the globe where deregulation led to problems.

Mark Crosby of Monash University said that household debt is already at concerning levels.

"There is an implicit assumption forming that property prices won't fall and it is fine to gear up. Same as 2008, and many previous speculative bubbles," Crosby said.

Peter Boehm of CLSA Premium said, "When interest rates start to rise, it is possible a mortgage arrears time bomb will be released."

Christine Williams of Smarter Property Investing said that there are already too many unsecured lenders, (e.g. Afterpay, Zip, etc) undermining the responsibility of paying down debt.

Craig Emerson of Emerson Economics said, "Banks will become less concerned about ability to repay mortgages in an effort to increase market share."

On the other side of the argument, 45% of experts argue that the current regulations in place are too onerous and are hurting both borrowers and lenders.

Rich Harvey of Propertybuyer said that those with the ability to borrow sustainably and with good employment history and serviceability should be able to borrow.

"Stronger borrowers create a stronger economy as they help inject investment into other sectors of the economy," Harvey said.

Nicholas Gruen of Lateral Economics said that it's a real hardship for some older Australians who are income-poor but asset-rich.

"The regulations are pretty silly now, requiring lenders to turn down plenty of viable lending," Gruen said.

Dr Andrew Wilson of My Housing Market said that the "banking oligopoly" ensures strong market power with ongoing risk-averse lending policies.

Economic sentiment graph – March 2021

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "2021 looks likely to see a reflation move that sees the end of RBA yield curve management and sets the stage for a review of the existing ultra-low rate environment."

Shane Oliver, AMP Capital: "While the economy has recovered faster than expected, the RBA is still a long way away from meeting its inflation and employment goals, so a rate hike is still a long way away. That said, the faster than expected recovery will likely see the first hike occur earlier than the RBA's expectation of no increase before 2024. It could come late next year or early 2023."

Rebecca Cassells, Bankwest Curtin Economics Centre: "There's an increasing prospect of interest rates being lifted earlier than the 2024 timeline that the RBA has offered up in recent statements. This could be as early as the second half of 2022 if the labour market continues to respond and prices continue to push upwards – particularly through the housing market. Whether this activity will be enough to reach the 2% inflation threshold will remain to be seen, but it's certainly more likely now than it was a month ago."

David Robertson, Bendigo Bank: "The official cash rate should start to rise by 2023. The welcome recovery for jobs is evidence that monetary policy has combined effectively with fiscal and health policies, so assuming the vaccine rollout goes smoothly, this recovery can build pace through 2021."

Sean Langcake, BIS Oxford Economics: "The RBA have been explicit that they don't expect to raise the cash rate until 2024. Their hand may be forced a little sooner than that, but the first rate hike is still a couple of years away."

Ben Udy, Capital Economics: "While we are upbeat about the economic outlook, the RBA has announced it will extend its asset purchases when they end in April and we think they will extend again through to the end of 2021."

Peter Boehm, CLSA Premium: "The RBA has strongly indicated that interest rates will remain at their current levels for the foreseeable future and there has been no economic data to suggest otherwise. We'll need to see the impact of the end of JobKeeper in March, but if the economic recovery continues on its current recovery trajectory, it is highly likely we'll see interest rates begin to rise early next year."

Stephen Halmarick, Commonwealth Bank: "The RBA forward guidance is clear that the cash rate will not be increased until actual (not forecast) inflation is sustainable within the 2-3% target range – which they put at 2024."

Saul Eslake, Corinna Economic Advisory: "Because they have said so explicitly ('2024 at the earliest'), although I am surprised they haven't left themselves some 'wriggle room' for the possibility that the unemployment rate falls to less than 5% before then."

Craig Emerson, Emerson Economics: "The RBA has indicated it won't change the cash rate until inflation is well into the 2-3% range and unemployment is low."

Mark Brimble, Griffith University: "Another 12 months plus of stimulus/monetary policy support is likely to be needed. All going well with the vaccine, global macros and confidence, the second half of next year may see the winding down of this."

Tony Makin, Griffith University: "Global economic activity will pick up as countries are vaccinated. Given the expansion in money supplies, other things equal, this will put upward pressure on inflation. Otherwise, macroeconomics textbooks need to be rewritten. At the same time, record-breaking levels of public debt worldwide will continue to exert upward pressure on bond yields."

Alex Joiner, IFM Investors: "The RBA has absolutely no justification based on the current economic environment to wind back any of its stimulus measures. I don't expect it will contemplate such moves until the unemployment rate is at or below 5%."

Michael Witts, ING: "The pace of the recovery appears to be quickening such that the preconditions set by the RBA for a rate increase may occur earlier than their 3-year horizon."

Leanne Pilkington, Laing+Simmons: "The economy appears to be recovering faster than expected but the RBA has doubled down on its view that rates will remain low for some time to come. This stated unwillingness to tinker with rates will provide confidence to home buyers and continue to support rising property prices in the near term."

Nicholas Gruen, Lateral Economics: "It will be a long time before we raise rates."

Mathew Tiller, LJ Hooker: "Recent statements by the RBA suggest that they will continue to hold rates at their current level until the economy strengthens."

Geoffrey Kingston, Macquarie University: "Inflation is likely to pick up sooner than the official family thinks."

Michael Yardney, Metropole Property Strategists: "The RBA will wait for unemployment to fall, wages to rise and inflation to fall within its desired range before it raises rates."

Mark Crosby, Monash University: "The RBA has now clearly flagged no rate increases this year or next. Despite the debate over the expansion of QE, the RBA is rightly resisting, given the limited impact of further QE and already existing distortions."

Julia Newbould, Money Magazine: "The RBA has already indicated that it is unlikely to lift rates before the end of the year."

Susan Mitchell, Mortgage Choice: "I expect the RBA to continue to hold the cash rate. Economic indicators reveal a strong bounce back in the domestic economy. The housing market is booming, fuelled by an extremely low interest rate environment and fiscal stimulus. Unemployment has recovered from its pandemic peak and consumers are confident. The rollout of the COVID-19 vaccine will bolster consumer confidence in the months ahead. All these factors would encourage RBA board members to maintain the cash rate at its record low for the foreseeable future."

Dr Andrew Wilson, My Housing Market: "Although it is unlikely the RBA will increase rates until the jobless rate falls below 5%, it may be prudent to at least consider a tightening policy prior to achieving that rate to provide capacity for traditional monetary policy initiatives."

Rich Harvey, Propertybuyer: "The RBA have said that the rates are on HOLD for the next 3 years!"

Matthew Peter, QIC: "Although the labour market is improving and global commodity prices are lifting headline inflation, full employment remains a long way off. Until then, wage growth will remain tepid and underlying inflation will be weak. The RBA will keep rates at 0.1% until the unemployment rate gets to 5%, which is at least two years away."

Noel Whittaker, QUT: "I am sure they won't go up – and I doubt they will take them down any more at this stage."

Cameron Kusher, REA Group: "Based on the RBA's guidance, I see no reason why they would change direction and cut rates and [there is] no sign they will lift rates any time soon."

Jason Azzopardi, Resimac: "I believe a period of stable interest rates is required to provide confidence and stimulate growth."

Sveta Angelopoulos, RMIT: "It's unlikely that the economy will experience excessive inflationary pressures for some time, given the existing conditions."

Brian Parker, Sunsuper: "Because it will take a considerable time for wage and price inflation to be high enough for the RBA to raise rates."

Jonathan Chancellor, "There will be bumps in the economic recovery that will prompt the central bank to keep rates on hold for the next two years as they watch for inflationary pressures."

Dale Gillham, Wealth Within: "Whilst the vaccine rollout is now underway, I think our economic recovery will be slow as many industries will not get back to full speed for quite some time."

Other participants: John Hewson, ANU. Angela Jackson, Equity Economics. Jeffrey Sheen, Macquarie University. Stephen Koukoulas, Market Economics. Alan Oster, NAB. Christine Williams, Smarter Property Investing. Clement Tisdell, University of Queensland. Bill Evans, Westpac.

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