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Interest-fuelled slowdown tipped

A SLOWDOWN in the property sector is likely following the recent increase in interest rates, property leaders have warned.

Property groups appear united in their condemnation of the Reserve Bank’s decision to increase the official interest rates by 0.25 per cent.

Both the Real Estate Institute of WA and Master Builders Australia said the rate rise was totally unnecessary as inflation was still low and there was no evidence of an across the board overheating in property prices.

REIWA president Neville Fox said he felt the Reserve Bank had acted prematurely.

“It should have waited to see if the housing sector and the broader economy slowed naturally, without the need for a rate rise,” Mr Fox said.

“The timing of the interest rate rise is wrong because the housing market was expecting a natural slowdown when the pre-GST frenzy passed.”

Before the Reserve Bank announcement, Mr Fox cautioned that the WA housing market was approaching a natural peak.

“The Reserve Bank should wait and see what happens after some of the major ‘one-off’ influences in the economy are out of the way, including the GST, the Olympics, the new capital gains tax provisions and year 2000 computer anxieties,” he warned.

“In WA we have not yet seen the full impact of the slowing in other economic areas like the mining sector.”

Master Builders Australia chief economist and deputy national executive director, Wilhelm Harnisch said he could understand the pre-emptive nature of the decision to control inflation but said it should have been left to a later date.

Mr Fox warned there was a risk the rate rise would bring forward the slowdown.

He said it was likely interest rates would continue to remain relatively low over the long term, as long as inflation remained low.

“However, interest rate perception is influential in the real estate sector. Homebuyers need the reassurance that rates will continue to remain low.”

Mr Fox said those hardest hit would be those who had over-borrowed.

“The average home loan in WA in June 1999 was $120,000 which is 20 per cent higher than the same time last year,” he said.

Mr Harnisch said the interest-rate sensitive housing sector would be most affected by the decision.

“Existing home owners will face an average increase in repayments of $21 per month on their housing loans,” he said.

“While most have orders to cover the next six months, the greatest concern for home builders will be future interest rate rises which may be on the horizon and the negative impact these will have on home-buyers’ decisions,” Mr Harnisch said.

“For home builders interest rate rises will be an added challenge as they respond to the introduction of the GST,” he said.

“The decision will also directly impact on the cost of business borrowings that can only lead to higher prices.

Mr Harnisch said the Australian building industry had benefited enormously from a sustained period of interest rate stability.

“What is required is a continuation of

the sensible and measured approach which has marked the Reserve Bank’s interest rate policy to date,” he said.

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