With 2022 now behind us, what does 2023 have in store?
The RBA's first meeting of the year will be on Tuesday 7th February. Inflation unfortunately crept back up due to Christmas retail, cost of domestic travel and energy prices spiking, so many industry experts are predicting another cash rate rise for February.
Blue Crane is expecting a 0.25% p.a. cash rate rise, with another increase in March. From here, the lagging inflationary data and cost of living will hopefully spell the end to rate rises for 2023.
The real test will be the flood of fixed rate home loan borrowers converting onto variable rates over the next 6-12 months. Some, if not most of these borrowers, will soon be exposed to double the amount of monthly repayments on their mortgages. This may place the most pressure on set income households – if this is the case, it means more sales and renters joining an already competitive market. This may continue to drive up rentals across the board.
Our view is the disparity between home dwellings and apartments will start to close. First home buyers will start to drive the lower end of the market along with investors looking for 2- to 3-bedroom apartment returns.
Challenges in the construction sector haven't waned and continue to put pressure on new builds and renovations, however, green shoots are starting to appear with construction costs and more specifically materials, starting to plateau. Hopefully, some luck with the weather this year too, will help deliver projects in a more timely manner. In general, if sites were purchased in the last 2-3 years, developers/landowners are finding it difficult for their feasibilities to stack up on a profit level. The developers with strong balance sheets and funding support will continue to thrive with potentially a strong demand for new stock in 18-24 months’ time.
We have also seen a glut of land bank transactions, which are not being extended or reapproved by the incumbent lender. Given the declining assets values and rising rates, this will naturally require further equity into the renewals or refinancing of these facilities.
Despite the numerous challenges ahead, we see plenty of opportunity in market for investors and developers. Accessing the right form of capital for your transaction, particularly in the current climate, has never been so important. With Blue Crane's depth of lender relationships and track record, please speak with one of our team members if you wish to discuss your transaction or the lender market in general.