A luxury beachfront apartment at Rainbow Bay has more than doubled in value since it sold off the plan six years ago, setting a new local apartment record in the process.

The three-bedroom apartment in the Flow development on Petrie Street, the first of four new projects locally by Paul Gedoun's S&amp;S Projects, has sold for $7.4 million, after originally selling for $3.27 million when the project launched in 2020.

The seventh-floor apartment, comprising 187 sqm of internal living space and a 54 sqm balcony overlooking Froggies Beach and Snapper Rocks, was purchased by a local family.

The transaction was negotiated by Pezet Matheson director Kerry Pezet and equates to more than $30,000 per sqm.

Pezet said the sale reflected the limited opportunities to buy into the boutique beachfront development.

"The sale highlights the rarity of opportunities within the boutique beachfront development, where residences seldom become available," Pezet said.

"Flow is one of the Gold Coast's most tightly held buildings. Buyers from our database move quickly when residences become available, and achieving an off-market sale at $7.4 million demonstrates the depth of demand for property of this calibre."

<img alt="Flow" data-entity-type="file" data-entity-uuid="c585b206-2130-4eee-a50c-3f27c51a7c70" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-06%20at%208.33.25%E2%80%AFPM.png?VersionId=m3pHRDV62Y3fvN.XQuQHq.52ilTWpRLf" />

Flow was the first of four luxury apartment developments delivered by Paul Gedoun's S&amp;S Projects at Rainbow Bay and was completed in 2023.

Positioned on the beachfront overlooking Snapper Rocks, the residence includes three bedrooms, three bathrooms, a powder room and views stretching north along the coastline towards Surfers Paradise.

Pezet Matheson Residential principal Mitchell Lambert said buyers continued to prioritise quality beachfront apartments in tightly held locations.

"Flow Residences offers a rare combination of elevated beachfront positioning, architectural excellence, comprehensive resident amenity and premium finishes, which is exactly what discerning purchasers are seeking," Lambert said.

"The transaction further reinforces Rainbow Bay's reputation as one of Australia's premier coastal lifestyle destinations, where limited supply and growing demand continue to support strong market performance."

Pezet Matheson originally marketed and sold out Flow off the plan, making the latest transaction a return to one of the project's original buyers.

Paul Gedoun is selling his third project, <a href="https://www.apartments.com.au/new-apartments/radia-rainbow-bay-271-boundary-street-coolangatta-qld-4225">Radia Rainbow Bay</a>, after recently completing, and selling out, <a href="https://www.apartments.com.au/buildings/esprit-217-227-boundary-street-coolangatta-qld-4225">Esprit</a>. He has plans for a <a href="https://www.apartments.com.au/news/qld/first-look-s-s-projects-proposes-88-apartment-wellness-tower-at-coolangattas-boundary-street">fourth building</a>, 88 apartments on <a href="https://www.apartments.com.au/new-apartments/209-213-boundary-street-coolangatta-qld-4225">Boundary Street</a>.

Joel Robinson

Rainbow Bay apartment doubles in price since off the plan sale during pandemic

The long-planned transformation of Brisbane's historic Shafston Estate has taken another major step, with Capella Hotel Group announced as the luxury hospitality partner behind what will become Brisbane's first branded residences.

The project, to be known as Capella Residences Brisbane, is being delivered by Verso Projects at the landmark Kangaroo Point riverfront estate, with completion targeted for 2029.

The announcement follows a series of planning changes to the project over recent years. The site was originally approved in 2023 for a 15-level, 37-apartment development designed by Rothelowman for Burgundy Group before Verso Projects took over the 10,070 sqm riverfront holding and lodged revised plans with Kerry Hill Architects to increase the development to a 25-level tower with 51 apartments.

The latest announcement confirms Capella Hotel Group will bring its branded residential offering to the project, marking just the second Capella Residences development globally after Seoul, and the group's first branded residential project in Australia.

The <a href="https://www.apartments.com.au/new-apartments/23-castlebar-street-kangaroo-point-qld-4169">Castlebar Street development</a> will centre around the restoration of the heritage-listed Shafston House, one of Brisbane's oldest residences, originally constructed in 1851 by Reverend Robert Creyke as a single-storey cottage known as Ravenscott.

<img alt="Capella" data-entity-type="file" data-entity-uuid="2b9f4ce5-638f-4d6b-8082-3ca7e4b75fca" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-09%20at%207.20.41%E2%80%AFAM.png?VersionId=f7aeqsW_DzOJI4FymWb3lD8NptSfsP7q" />

Capella said the project aligns with its focus on heritage-led developments, with the Brisbane estate combining the restored historic residence with a new luxury apartment tower and hospitality-inspired resident amenities.

Residents will have access to the Capella Living Room, a concierge-led communal space inspired by the group's luxury hotels, alongside landscaped gardens, six swimming pools, wellness and recreation facilities.

The broader estate will also include two riverfront homes, a six-berth private marina, porte cochère arrival experience, secure basement parking and a new section of public riverwalk along the Brisbane River frontage.

The heritage Postal Depot Building will also be retained and repurposed as a guest house, in line with the revised development plans.

The project represents another evolution for the site, which Kerry Hill Architects previously described as a rare opportunity to restore one of Brisbane's most significant heritage estates while creating a new benchmark for apartment living.

"The Shafston Estate provides a once-in-a-generation opportunity to restore one of Brisbane's finest heritage precincts and to reinstate residential use as a unique site perched on the edge of Kangaroo Point," Kerry Hill Architects said in its Urban Context Report accompanying the planning submission.

"The project will celebrate excellence in sub-tropical residential design, setting a new benchmark for vertical living in Brisbane."

Verso Projects, which now has an $8.5 billion development pipeline spanning more than 6,000 dwellings across apartments, townhouses, retail and commercial projects, said the partnership with Capella would elevate the development beyond a traditional residential project.

"We feel honoured to be restoring Shafston Estate to its former glory, elevating it to new heights of luxury and excellence underpinned by Capella's distinctive service ethos and design philosophy, and making it a standout landmark in Brisbane," Verso Projects CEO Steve Laffey said.

"By partnering with Capella, globally recognised for its refined approach to luxury hospitality and deep respect for cultural and historical context, we will elevate this project beyond a residential offering into a world-class destination."

Capella Hotel Group President Roland Fasel said Brisbane's emergence as a global city made it the right location for the company's Australian residential debut.

"Brisbane is a city on the cusp of something remarkable, and Capella Residences is our commitment to being part of that story," Fasel said.

"The Capella residential experience is more than luxury. It is about a sense of belonging to a place with deep meaning."

Private appointments have now opened for the project, with a display suite expected to open in late 2026 ahead of the planned 2029 completion.

Capella to launch Brisbane's first branded residences at Shafston House, Kangaroo Point

Lewis Land's latest apartment release within its <a href="https://www.apartments.com.au/new-apartments/harbour-shores-biggera-waters-564-oxley-drive-biggera-waters-qld-4216">Harbour Shores</a> masterplan is targeting one of the Gold Coast's fastest-growing buyer groups, with almost a third of apartments at Solis priced below $1 million.

The seven-storey building at Biggera Waters will comprise 91 apartments, including 24 one-bedroom residences starting from $778,000, a price point Lewis Land says is aimed squarely at first home buyers struggling to enter the Gold Coast market.

<img alt="Harbour Shires" data-entity-type="file" data-entity-uuid="e7486e37-22f6-4c92-b212-9b0622070b8f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-08%20at%209.09.34%E2%80%AFAM.png?VersionId=W8MJwJUCf6HkIyl_EVSksnd.QI6MZryY" />

<a href="https://www.apartments.com.au/developers/lewis-land-group">Lewis Land</a> Head of Development Michael Long said the developer deliberately allocated a significant proportion of the project to more affordable apartment types.

"First home buyers have been priced out of many parts of the Gold Coast, and we saw a clear opportunity to address this and play our part in a longer-term housing solution," Long said.

"That's why 24 of the 91 apartments being delivered at Solis have been designed and priced for the city's next generation of homeowners, quality one-bedroom apartments, half of which include an additional multipurpose room to maximise space and flexibility.

"This approach places 30 per cent of apartments in Solis under $1 million, and with close proximity to Harbour Town's future light rail extension connecting residents to the city's major employment and knowledge hubs, it's a win for buyers looking to secure their first property."

<img alt="Sores" data-entity-type="file" data-entity-uuid="550526d3-73ba-4710-9739-c5f4294a30ef" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-08%20at%209.09.29%E2%80%AFAM.png?VersionId=cQQdXHt9wS0UXwZEm5Py5bH_3kAmzyhu" />

Designed by BDA Architecture, Solis will deliver a mix of one, two and three-bedroom apartments, with residences ranging up to 232 sqm. Apartments feature generous balconies and contemporary finishes, while residents will have access to Harbour Shores' lagoon pool, clubhouse, tennis court, gym, yoga studio and sauna.

The focus on first home buyers resonated with purchaser Holly Humphreys, who said she and her boyfriend spent more than a year searching for their first property before shifting their attention from houses to apartments.

"We fell in love with the first house we bid on and got our hopes up, but after repeated knockbacks we learned not to get too attached," Humphreys said.

"We offered at the high end of price guides, but sales kept going even higher. That's where we really struggled and we needed to re-evaluate our budget and our expectations. Standalone houses were off the table, and we pivoted to apartments and townhouses."

Humphreys said it was encouraging to see developers recognising the growing demand from first home buyers.

"There's a growing number of young buyers looking to enter the market earlier because they understand that getting in now can make a real difference as prices continue to rise," she said.

"It's fantastic to see a developer recognise this and then actively take measures to deliver an apartment with us in mind."

Solis is the first development planned within the second stage of the Harbour Shores masterplan, with early works expected to commence in September 2026.

[smartcode_project_cta:default project_id=113271]

Lewis Land targets first home buyers at latest Harbour Shores release, Solis

Luxury apartment developer Abadeen has recorded $19.25 million in apartment sales across two of its Lower North Shore developments in the lead-up to the end of the financial year, headlined by the sale of a $6.75 million penthouse at <a href="https://www.apartments.com.au/buildings/koyo-crows-nest-5-rodborough-avenue-crows-nest-nsw-2065">KOYO in Crows Nest.</a>

The transactions also included the sale of a newly completed three-bedroom apartment at <a href="https://www.apartments.com.au/buildings/park-residences-cremorne-2-sutherland-street-cremorne-nsw-2090">Park Residences in Cremorne</a> for $6.35 million, with the residence selling shortly after the project's first public inspections following completion.

The sales come as completed, owner-occupier-focused apartments continue to attract strong demand across Sydney's Lower North Shore, particularly from buyers looking for certainty and immediate occupancy.

The penthouse at KOYO spans 491 sqm across a single level and was designed by architect Koichi Takada. The development is one of Abadeen's flagship boutique projects in Crows Nest.

[smartcode_project:default project_id=108800 project_image_fid=370093]

Abadeen Executive Chairman and Founder Justin Brown said buyer activity lifted noticeably in the lead-up to the end of the financial year.

"We saw a clear increase in enquiry levels, inspection numbers and buyer engagement across our completed projects leading into the end of the financial year," Brown said.

"Buyers have become far more decisive over the past six months. The combination of improving confidence, limited supply and the ability to physically inspect completed residences is creating strong competition for premium apartments in the best locations."

Brown says the&nbsp;response to Park Residences following completion has been particularly strong.

"Buyers want certainty and are responding positively to the opportunity to walk through a finished product, inspect the quality firsthand and move in immediately," Brown suggested.

"Projects such as Park Residences and KOYO demonstrate that when the product is exceptional and the location is irreplaceable, buyers are prepared to act quickly."

[smartcode_project:default project_id=114246 project_image_fid=370116]

Abadeen CEO Joe Tack said quality continued to differentiate projects in the current market.

"Today's buyers are incredibly discerning," Tack said.

"They are seeking larger floorplans, premium finishes, walkability, lifestyle amenity and confidence in the developer delivering the project. Well-designed boutique developments continue to outperform because they offer something genuinely difficult to replace.

"The enquiry we are seeing across our completed and recently completed Lower North Shore portfolio is very encouraging, and we expect this momentum to continue into spring."

The sales follow increased enquiry across Abadeen's Lower North Shore portfolio which also includes <a href="https://www.apartments.com.au/buildings/northcote-collective-naremburn-2-northcote-street-naremburn-nsw-2065">Northcote Collective in Naremburn</a> which also completed recently.

KOYO penthouse headlines Abadeen's $19.25 million EOFY sales flurry

The City of Sydney has approved plans for <a href="https://www.apartments.com.au/developers/billbergia">Billbergia Group</a> and Metrics Credit Partners’ $3.5 billion Castlereagh Place project in the heart of the Sydney CBD

The towers will be among the tallest in <a href="https://www.apartments.com.au/developments/sydney-nsw-2000">Sydney</a>'s CBD, with more floors than any other residential tower in the city.&nbsp;

The 6,000 sqm site was acquired by the joint venture partners in 2024. It is the largest amalgamated land parcel in the Sydney CBD and comprises eight individual sites fronting Castlereagh, Pitt and Liverpool Streets.&nbsp;

<a href="https://www.apartments.com.au/new-apartments/castlereagh-place-sydney-324-348-pitt-street-sydney-nsw-2000">Castlereagh Place</a> will transform an underutilised city block into a landmark mixed-use destination, anchored by two 82-storey towers comprising 607 luxury residences above an 8-level podium housing a 209-room luxury hotel. A 1,000 square metre civic park on ground level features a curated mix of food, beverage and retail.

The plans have been refined over the past year to rebalance the residential and hotel offering, and reconfigure the retail footprint to create a stronger, more dynamic dining experience.

A three-level flagship building on the prominent corner of Pitt and Liverpool Streets will be the gateway to the Castlereagh Place lifestyle precinct. Set to become a Sydney icon, the building is capable of housing multiple hospitality venues.

“Castlereagh Place is designed to be the City's next great urban oasis - an energetic mixed-use precinct that pulses with life, day and night,"&nbsp;said Joseph Kinsella, Group Director of Billbergia.

"It will bring the vibrancy of places like Barangaroo and Darling Quarter into a more accessible, central destination at the very heart of Sydney."

Kinsella said the project will build on&nbsp;Sydney’s growing laneway culture with the City’s largest network of new activated lanes - an expanded, next-generation take on precincts like Angel Place, Palings Lane and Ash Street in Wynyard.

[smartcode_project:default project_id=134477 project_image_fid=374401]

Castlereagh Place has been designed by architects <a href="https://www.apartments.com.au/architects/fjc-studio">fjcstudio</a> in collaboration with Trias Studio, Aileen Sage and Polly Harbison Design, joint winners of an international design competition in 2018.&nbsp;

Signature design elements from the original scheme remain unchanged, while the public domain has been significantly enhanced, delivering 60 per cent more open-to-sky space.

Pedestrian access will also be enhanced through new laneways linking Pitt, Liverpool and Castlereagh Streets, drawing people into a new civic park with outdoor seating, landscaping and integrated public art.

With activated laneways supported by strong hospitality offerings, Castlereagh Place is tipped to become a vibrant new dining destination in the heart of Sydney’s CBD.

It marks the largest undertaking to date for the Billbergia and Metrics Credit Partners partnership. Together they are developing other underutilised Sydney sites into mixed-use precincts, including the $2.2 billion Concord Central and the $1.3 billion Chatswood Grand Residences.

Metrics Managing Partner and Group CEO Andrew Lockhart said Castlereagh Place is a landmark project that will redefine Sydney’s skyline.

"As the tallest residential high-rise development, the revitalised site will offer panoramic views across the CBD and surrounds. We are excited to partner with Billbergia to reinvigorate an underutilised site and create a sophisticated and contemporary mixed-use offering situated in the heart of Sydney.”

Total apartments within the towers have increased to 607 dwellings, with a focus on larger floorplans. Aligned to growing market demand, Castlereagh Place now comprises 299 three-plus-bedroom apartments, 198 two-bedroom units and 110 one-bedroom configurations.

[smartcode_project:default project_id=134477 project_image_fid=374402]

Resident amenities will include an exclusive residents club containing a gym, rooftop pool, dining rooms, co-working spaces, library, golf simulator, games room, cinema room, and access to an exclusive concierge service. There will be around 500 basement car spaces below the towers.

The development will also include a state-of-the-art wellness centre, set to feature a bathhouse with magnesium pools, hot/cold plunge pools and premium amenities.

&nbsp;

According to fjcstudio, the towers will feature distinctive yet elegant architectural design reflecting Sydney’s geometry and urban character, with a network of through-site links and intimate public spaces activating the streetscape.

"Castlereagh Place is a city-making project of significant scale and ambition," said Richard Francis-Jones, Design Director at fjcstudio.

"It will create a rich urban complex of public open spaces, landscaped gardens, and vibrant laneways. Defining these new public spaces and the important streetscape of Castlereagh Street is a sequence of fine-grained, diverse retail and hotel architecture designed in collaboration with Aileen Sage, Polly Harbison Design and Trias.

“Rising above the tree-lined, human-scale streetscape are two slender residential towers that will transform the city skyline and look towards the Harbour, Hyde Park, and the Royal Botanic Garden.”

Demolition and early construction works have commenced onsite at Castlereagh Place.

[smartcode_project_cta:default project_id=134477]

Billbergia, Metrics, approved for $3.5 billion Sydney skyscrapers

National Australia Bank (NAB) has brought forward the timing of the first RBA cash rate cut by three months.

NAB is now expecting a cut in February, in line with ANZ and Westpac, having initially thought a cut wouldn't come until May.

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB changed its call following the August monthly inflation figures that were released at the end of September, showing it had dropped to 2.7 per cent.

"The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," NAB noted in its latest update.

They added that the cadence of the cuts may be faster than its central profile.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.

NAB believes the easing cycle will end at 3.1 per cent by early 2026, which is five cuts from the current 4.35 per cent cash rate.&nbsp;

CBA also thinks 3.1 per cent will mark the end of the cutting cycle, while Westpac is forecasting 3.35 per cent, and ANZ is the most pessimistic at 3.6 per cent, which would be just three interest rate cuts.

<h2>What would a rate cut in February look like for borrowers?</h2>

According to&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2vK2ujS77CHs9VRvSSXzLC" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG" target="_blank">Canstar</a>, if there is a cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.&nbsp;

<table border="1" cellpadding="0" cellspacing="0">
	<tbody>
		<tr>
			<td colspan="3">
			Impact of 0.25% pt cut in February 2025
			</td>
		</tr>
		<tr>
			<td>
			Current loan size
			</td>
			<td>
			Drop in monthly repayment
			</td>
			<td>
			New monthly repayment
			</td>
		</tr>
		<tr>
			<td>
			$600,000
			</td>
			<td>
			-$92
			</td>
			<td>
			$3,907
			</td>
		</tr>
		<tr>
			<td>
			$750,000
			</td>
			<td>
			-$114
			</td>
			<td>
			$4,884
			</td>
		</tr>
		<tr>
			<td>
			$1M
			</td>
			<td>
			-$153
			</td>
			<td>
			$6,512
			</td>
		</tr>
		<tr>
			<td colspan="3">
			Source:&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2qVnp6oqATgqDUi2Frm22q" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL" target="_blank">www.canstar.com.au</a>. Starting rate is the RBA existing average owner-occupier variable rate of 6.36%. Assumes banks pass the cash rate cut on in full the month after the meeting.
			</td>
		</tr>
	</tbody>
</table>

Canstar Data Insights Director, Sally Tindall, says if core inflation continues to track in the right direction, or unemployment starts to accelerate significantly, we could well see a cash rate cut as early as February of next year.

“All four big banks now believe the RBA will be ready to cut the cash rate in just over four months’ time, if not before, in the case of CBA.

“However, the outlook for both inflation and unemployment is still highly uncertain. A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady."

&nbsp;

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB bring forward first RBA cut to February 2025

<html><body>
As any buyer of a home for $550,001 or more will attest to, stamp duty rates in Victoria are in need of revision. 
It will surprise most home buyers to know that if you purchase a home to live in for $550,001 rather than $550,000 then you will be forced pay an additional $3,100 in stamp duty. This is because the stamp duty payable on a home purchased for $550,000 is $24,970 and on a home purchased for $550,001 it is $28,070.
This anomaly dates back to 2007, when stamp duty rates were cut for homes lived in by the purchaser and valued under $550,001. Those purchased for a higher amount were subject to the older stamp duty scales.
There is no rational reason for this, and it seems unfair to penalise buyers who need to pay just a little bit more. To someone buying a new home, $3,100 could, for example, meet relocation costs or legal expenses.
It’s interesting that the distortion to the scales does appear to have created a high number of buyers at the $550,000 price point. In 2011 there were 418 buyers who paid $550,000 and avoided the extra $3,100 in stamp duty and only 28 who paid between $550,001 and $551,001. This, however, may simply be because $550,000 is a round number.
The REIV has campaigned to have stamp duty reduced; however, the unfair distortion of the tax scales at $550,000 shows that the rates could also easily be made fairer.
Enzo Raimondo is CEO of the <a href="https://www.reiv.com.au/" target="_blank">Real Estate Institute of Victoria</a>.
 
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enzoraimond-7fvRFHPR52

When a dollar extra paid for property costs you $3,000 in tax

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In a not surprising (for readers of this column) attempt to politically pressure Australia's central bank, <a href="https://afr.com/p/national/pm_surplus_can_drive_down_rates_fjKXptC6sJlyBIDEPgt7YI" target="_blank">a major media outlet</a> reports today that the Prime Minister has broken with historical convention – for an incumbent government – and called on the RBA to lower interest rates given the government's mooted fiscal promises. This is after the current Labor government controversially took away the RBA board's pay-setting powers because it was too generous with the governor's salary package, replaced one independent (and hawkish) director with a manufacturing industry lobbyist who describes herself as a "growth girl" and an inflation "dove", and broke with long-term convention by replacing the board's standing independent academic expert (another hawk, Professor Warwick McKibbin, who had offered himself up for re-election) with a former advisor to a Labor prime minister, Paul Keating.  Some have also observed that while the current RBA governor contentiously hiked rates in the final month of the 2007 election campaign as the global financial crisis was brewing – an election that the Liberal Party lost that month – he did not touch rates during the subsequent 2010 campaign despite possessing a hawkish bias, waiting until November to raise them pointedly after Labor had scraped home with a hung parliament. In a panel interview with Bloomberg yesterday, the former RBA board member, McKibbin, described the government’s recent elections to the RBA board as "disconcerting". McKibbin advocated a board structure comprising of three RBA staffers (currently there are only two), three independent economics experts (currently there is one), and three "community representatives" with no politically appointed treasury secretary.  The <a href="https://afr.com/p/national/pm_surplus_can_drive_down_rates_fjKXptC6sJlyBIDEPgt7YI" target="_blank">Australian Financial Review</a> reports that today: “Prime Minister Julia Gillard will aggressively link her budget ­surplus goal directly to lower interest rates, saying that the Reserve Bank of Australia has “plenty of room” to cut its 4.25% cash rate... Her speech to business leaders in Perth will also make the case for a reweighting of monetary policy which could help push down the ­Australian dollar and provide relief to manufacturers, exporters and the tourist industry. In effect putting the political success of next month’s budget into the hands of the Reserve Bank board, Ms Gillard will say that the large ­interest rate differential between ­Australia and offshore markets gives the RBA “plenty of room to move ­further if need be”. The Prime Minister is quoted apparently calling on Australia's central bank to re-focus on its antediluvian 1959 mandate, which requires it to give equal weight to employment, growth and price stability. Since that time, however, the treasurer of the day and the governor of the RBA have signed a total five "<a href="https://www.rba.gov.au/monetary-policy/framework/stmt-conduct-mp-5-30092010" target="_blank">Statements on the Conduct of Monetary Policy</a>" documents that explicitly subordinate the employment and growth goals in the 1959 Act to allow the RBA to focus mainly on one medium-term objective: price stability. Specifically, the latest statement signed by Wayne Swan and Glenn Stevens says (emphasis added): "Since the early 1990s, inflation targeting has formed the basis of Australia's monetary policy framework. Since 1996, this framework has been formalised in a Statement on the Conduct of Monetary Policy. The inflation targeting framework has served Australia well and is reaffirmed in the current statement...  [The three objectives outlined by the 1959 Act] allow the Reserve Bank board to focus on price (currency) stability while taking account of the implications of monetary policy for activity and, therefore, employment in the short term. Price stability is a crucial precondition for sustained growth in economic activity and employment. Both the Reserve Bank and the government agree on the importance of low inflation and low inflation expectations...[and] on the objective of keeping consumer price inflation between 2 and 3%, on average, over the cycle." In today's speech the Prime Minister seems to confuse these priorities. Without having the benefit of the first-quarter inflation results, which are expected to be benign, or revisions to the 2011 inflation numbers, the Prime Minister advocates the employment and growth benefits of lower rates with inflation-targeting added as an after-thought:  “In the current economic environment, should the RBA consider it appropriate to change the cash rate, this could deliver widespread benefits for households and business – noting that a number of sectors of the economy most under strain are arguably more sensitive to interest rates...This is fully consistent with the Reserve Bank’s charter obligations to best contribute to economic prosperity and full employment, as well as containing inflation.” One problem for the RBA is, as McKibbin explained yesterday, that the current government's forecasts and commitments to fiscal contraction are already accounted for in the central bank's analysis (since Treasury have always projected a steep fiscal consolidation following a fiscal stimulus that McKibbin believes was twice as large as it needed to be) and are, in any event, merely political promises. At the invitation-only Bloomberg conference, McKibbin argued that the RBA would be far more focused on what policies the government actually delivers given its history of missing commitments. He also suggested that it was unreasonable to ask the RBA to make decisions today on the basis of assumed budget outcomes before it had the benefit of both seeing what is promised on the May 8 and what the government ultimately delivers.
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The above article is not investment advice.
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chrisjoye-JYhJsTrNRC

Australian Prime Minister politicises the RBA – again: Christopher Joye

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Generation Y are savvy and sceptical and make up nearly half of the nation’s first-home buyers, according to QBE Insurance’s mortgage report.
The LMI Barometer found that 45% of the first-home buyers it surveyed are under 30 years old, and many borrow money family to help them onto the property ladder. In fact, 20% of this group lives at home while saving, which is up from 18% last year.
While dedicated saving is how 91% of first-time buyers gather their deposits, one in 10 confess to raising money through loans from parents. Indeed, 20% of this group has a guarantor for their loan – usually their parents.
The LMI Barometer found that 41% of first-home buyers have a household income of between $100,000 and $200,000. As a sector, they are also motivated to lenders with low deposit requirements.
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“The average deposit for first home buyer respondents is $60,821, which takes 4.7 years to save and is well below the overall average deposit of $101,767,” the study found.
They are also more pessimistic than other groups, and 83% consider property to be overvalued, which includes 50% who think prices are ‘significantly overvalued’.
But the cynicism does not dampen enthusiasm to spend, with 44% of this group aiming to have bought a property in 12 months. On average Gen Y first-home buyers will borrow $372,259. On their way to that purchase, they do better research and rely on external advice more than other market segments surveyed.
More than half of the first-time buyers’ respondents believe that property prices will be stable or higher in 2012, which is down from the 73% who believed the same in 2011.
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“First-home buyers have a fairly bullish outlook on property over the medium term, with 52% agreeing property prices will increase strongly over the next three years. This is ahead of the national average of 42%,” the report says.
Possibly due to fears about rising property prices, 39% of this group thinks it is more important to enter the market now rather than save for a bigger deposit.
 
 
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andreadixon-oif3j7eKne

Gen Y first-home buyers pessimistic about house prices but eager to get into the market: QBE LMI survey

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A fundamental truism of economics is that if you tax something, you get less of it. Tax is thus a good place to start in seeking to explain why Australia’s housing market is chronically under-supplied, with adverse implications for housing affordability.
Many commentators have argued that housing is tax advantaged because of the principal residence exemption from capital gains tax. They see the exemption as a source of increased demand for housing and a negative influence on housing affordability rather than a boost to housing supply.
This leads to the incorrect conclusion that housing affordability could somehow be improved by abolishing the principal residence exemption and other tax concessions. For example, journalist George Megalogenis has written that “housing can only become more affordable if prices stop rising… It can only be done by making property less attractive than other investments, such as shares or superannuation… bricks-and-mortar should lose its taxpayer supports.”
The Henry Tax Review was commendable for rejecting the view that saving via owner-occupied housing should be taxed. The Henry Review favoured an expenditure tax benchmark that exempts the returns to saving from tax, including saving via housing. The final report’s recommendation that saving via owner-occupied housing remain tax-exempt was explicitly based on this benchmark. The final report also recommended that the returns to other forms of saving, including capital gains on other assets and net residential income and losses, should enjoy a 40% tax discount.
The Henry tax review made clear that the problem with Australia’s tax system is not that saving via housing is taxed too lightly, but that other forms of saving are taxed too heavily. The principal residence exemption from capital gains tax is in fact model tax policy based on an expenditure tax benchmark.
Henry’s suggested move to a 40% savings income discount is designed, among other things, to remove “the current bias towards negatively geared investment in rental property and shares.” However, this recommendation was made subject to the important proviso that supply-side constraints in the housing market need to be tackled first and that phase-in arrangements should apply to minimise disruption to the housing market.
The final report noted that “changing the taxation of investment properties could have an adverse impact in the short to medium term on the housing market… reducing net rental losses and capital gains tax concessions may in the short-term reduce residential property investment. In a market facing supply constraints, these reforms could place further pressure on the availability of affordable rental accommodation.”
The pre-occupation of many commentators with the principal residence exemption from capital gains tax and negative gearing has diverted attention from the fact that housing in Australia, far from being supported by the tax system, is in fact very heavily taxed. A recent report by private consultancy, the Centre for International Economics (CIE), “<a target="_blank" href="https://hia.com.au/media/Industry-policy/~/media/Files/documents/CIE%20Tax%20Report.ashx">Taxation of the Housing Sector in Australia</a>,” prepared for the Housing Industry Association, quantifies the tax burden and its adverse implications for housing affordability.
The tax burden on new housing includes direct taxes such as the goods and services tax, stamp duty, land tax and council rates, as well as a variety of indirect taxes on inputs into housing and hidden taxes that arise from the planning and approvals process. CIE estimate that these taxes account for 44% of the purchase price of a representative new home in Sydney or around $267,879. Most of the burden of these taxes falls on home buyers and not home builders because the demand side of the housing market is less price sensitive than the supply-side.
The tax burden on housing also accounts for much of the financing cost of a new home and thus the burden of mortgage debt and associated interest payments. The cost of financing the tax component of the price of a new house in Sydney is equivalent to 33% of the after-tax income of a young couple aged between 24 and 35 on average wages. The burden is even higher in the first year when stamp duty is paid, accounting for a staggering 72% of after-tax income.
Australia’s under-supplied housing market and housing affordability problem is largely due to the tax burden on housing. Abolishing the principal residence exemption from capital gains tax and negative gearing would only add to this tax burden and further reduce housing supply.
Substantial gains in the efficiency of the tax system and housing affordability could be achieved through the substitution of more efficient taxes such as the goods and services tax for inefficient taxes on residential property. CIE estimate that replacing taxes on housing with a broadening of the GST base could increase GDP by around 2% and increase residential construction by 14%, providing a much needed boost to housing supply.
The main obstacle to a reform of this type is the dependence of state and local governments on residential property taxes, accounting for around 40% of their total revenues. This points to the need for a federal-state compact on tax reform that finances the abolition of inefficient taxes on residential property through changes in the GST rate or base. State and federal governments unwilling to consider such a compact are not serious about addressing housing affordability.
The solution to Australia’s housing affordability problem is to build more and cheaper houses. This can only be achieved by easing the tax burden on housing and not through the abolition of existing tax concessions.
Dr Stephen Kirchener is a senior lecturer ineconomics at the University of Technology Sydney Business School and a Research Fellow at the Centre for Independent Studies. 
This article originally appeared on <a target="_blank" href="https://theconversation.edu.au/">The Conversation</a>.
 
 
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skirchener-WSVU77PjD8

How taxing housing diminishes affordability

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Following a raft of economic data that has come out recently I felt it was important to reflect on this data.  It is obvious that the Reserve Bank  is currently in a very tough predicament. While much of the data is proving to be quite negative and providing a clear case for interest rate cuts, every now and then other pieces of data highlight that perhaps things aren’t so bad.  Most notable of these data releases was the labour force data. Despite most economists expecting an increase to the unemployment rate, it remained at 5.2% and the participation rate actually increased.
As most people will know, official interest rates are currently sitting at 4.25%.  Now over the past 20 years, the cash rate has sat at an average of 5.15%, much higher than its current setting.  Although the cash rate is at above-average levels, standard variable mortgage rates are sitting at 7.4%, which is fairly close to the 20-year average level (7.35%).  In recent years the major banks have sought to de-couple mortgage rates from official interest rates.  As a result, we now have a situation where the official cash rate is almost 100 basis points below the long-term average however; mortgage rates are sitting at average levels.  As a result, the amount by which the RBA is able to influence repayments on our largest asset class (housing) has been lessened over recent years.
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Looking at the RBA website, its official role is detailed at this <a href="https://www.rba.gov.au/about-rba/our-role">link</a>.  A lot of the data suggests that we are pretty close to full employment and that we still enjoy economic prosperity and welfare.  However, many would argue that the current high currency is providing instability. In its agreement with federal government the RBA is also charged with keeping inflation between 2% and 3% over the economic cycle.
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So looking at inflation and keeping in mind new data will be out later this month, headline inflation is currently recorded at an annual rate of 3%.  The RBA’s preferred measures of ‘underlying inflation’, the trimmed mean and weighted median are both well within the target range, recorded at 2.6%.  The most recent data available shows that headline inflation is at the top end of the target range (but it is falling) and underlying inflation is right around the middle of the band. 
Obviously the RBA is concerned about inflation and with good reason.  Glenn Stevens was made governor of the RBA in September 2006 and since December 2006, headline inflation has been recorded at an average of 3%, right at the top of the target band.  More concerning is the fact that the RBA’s preferred measures have been recorded at an average of 3.2% (trimmed mean) and 3.5% (weighted median).  Given this, it is no real wonder that the RBA decided not to cut interest rates this month. The RBA’s track record of hitting their inflation target has not been strong, and it wants to be as sure as possible before making any decision.
As I see it, it is fairly clear cut that another interest rate cut is required to help the economy, particularly if you take just a quick look at some of the recent negative economic data releases:
<ol>
<li>GDP – Australia’s economy continues to grow however, it is growing below the long-term trend</li>
<li>Property values – despite a stabilization over the first quarter of 2012, they are down -4.4% over the year</li>
<li>Consumer sentiment – the index continues to fall with pessimism outweighing optimism and the index is -10.2% lower than at the same time last year.</li>
<li>Business conditions – improving but still not particularly strong</li>
<li>Building approvals – continue to weaken and are -15.2% lower than they were at the same time last year</li>
<li>Housing finance data:<ol>
<li>When refinances are removed the value of finance commitments has risen by just 1.7% over the past year</li>
<li>The number of non-refinance commitments remains at low levels and has increased by just 3.6% over the year</li>
<li>Retail trade – remains quite sluggish having increased by just 2.0% over the past year</li>
<li>Growth in demand for credit by the private sector remains benign:<ol>
<li>Total credit has risen by just 3.5% over the past year</li>
<li>Housing credit has risen at an historic low rate of 5.3% over the year</li>
</ol>
</li>
</ol>
</li>
</ol>
Of course, times have changed in the Australian economy; consumers are saving again and credit isn’t as freely available as it used to be.  Although the Australian economy hasn’t entered into a recession it certainly seems that our mind set has changed and we are at least trying to be less reliant on borrowed money.  What that is likely to mean is that property values, building approvals, housing finance, retail trade and credit demand will grow at levels lower than those we have become accustomed to.  In saying this, just because the consumer mindset has changed it doesn’t mean we have to have a recession.
In my mind, we will see an interest rate cut next month as long as inflation is within the target range.  However, I don’t envy the RBA’s position, although a lot of the economic data looks bad they have been caught out before.  The significant growth in the mining sector is boosting the overall economy, the unfortunate thing being that most of us aren’t reaping these benefits.  Factors such as falling property values and lower levels of construction feed back in to consumers showing less inclination to spend which in-turn feeds back in to lower levels of consumer and business sentiment.  If we aren’t careful it could also lead to higher levels of unemployment and lower levels of economic growth or even a recession.
Let me know what you think. Was the RBA right to leave interest rates on hold and do you think it will do so again next month?
Cameron Kusher is senior research analyst at<a target="_blank" href="https://www.rpdata.com.au/"> RP Data</a>.
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The RBA is in a real bind on interest rate movements: RP Data's Cameron Kusher

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John Symond of Aussie Home Loans has given tentative support to the proposed scheme that would allow first-home buyers to pay off their stamp duty over three years rather than in one upfront lump sum.
The Real Estate Institute of NSW (REINSW) <a href="https://www.propertyobserver.com.au/tax/pay-as-you-go-stamp-duty-scheme-needed-for-first-home-buyers-reinsw/2012041654290" target="_blank">is urging the state government to allow first-home buyers to gradually pay off their stamp duty</a>.
But Symond says while the proposed scheme looked good on paper that young first-home buyers needed to vigilantly do their sums.
"I think you've got to be careful. Young, inexperienced buyers can easily get over their heads," he told News Limited.
"Australians have traditionally been better borrowers than savers. If first-home buyers have the possibility to repay it in time then great, but I wouldn't like to see it impede young people ... by just deferring the inevitable."
Australian Mortgage Options founder Robert Projeski<a href="https://www.propertyobserver.com.au/tax/stamp-duty-lay-by-scheme-could-help-first-time-buyers-get-into-the-market-robert-projeski/2012041754322" target="_blank"> has also backed the proposal</a>.
 
 
 
 
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jchancellor-FAypfDUnLy

John Symond tentatively backs REINSW stamp duty deferral proposal for first-home buyers

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Victorian borrowers feel more comfortable about their level of long-term debt than borrowers in the other states and territories, according the ING Household Financial Wellbeing Index.
Victorian borrowers scored 5.8 out of seven in this category, up from 5.5 a year ago.
A score of one indicates “very uncomfortable” and a seven indicates “very comfortable”.
Victoria scored above the national average of 5.5 and higher than NSW/ACT (5.6 up from 5.4 a year ago), Queensland (5.6 up from 5.4) and WA (5.6 up from 5.4).
South Australians feel least comfortable about their level of mortgage debt, with a comfort rating of 5.4. It is the only state to record a decline in mortgage comfort, down from 5.5 a year ago.
Victoria has the lowest percentage of borrowers (34%) paying extra on their mortgages, with the highest proportion found in WA and Queensland (46% paying extra on their mortgages).
Overall borrowers are more comfortable with their level of mortgage debt than they were a year ago, with the national index rising from 5.4 to 5.6.
The survey, which is based on the responses of 1,015 households between March 27 and April 2, 2012, found that the vast majority (93%) of households are comfortable with their home loan, with 63% “very comfortable” – the highest level recorded since the third quarter of 2010.
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Four out of 10 (40%) mortgage holders are paying off their loan ahead of schedule, according to the survey.
The survey found that nearly a third (31%) of households have share market investments (up from 24% in the fourth quarter), while more than half (51%) of households have no assets or investments outside of the family home.
The median value of total assets in each household (including equity in the family home) is $306,993.
One in five (21%) households say that they don’t have any investments or assets at all.
Long-term assets remains a weak spot of financial wellbeing, with 28% of households saying they are “very uncomfortable” with their level of investments and long-term assets, down from 31% in the fourth quarter of last year.
Nationally however there has been a slight increase in the numbers of households owning long-term investments – 17% own a rental property, up from 15% three months ago, and 31% hold sharemarket investments, up from 24%.
The overall Household Financial Wellbeing Index reached 106.9 in the first quarter of 2012 up from 105.6 in the fourth quarter of 2011.
Although this is below the reading of 107.5 achieved on inception of the index in the first quarter of 2010, it confirms an ongoing uptrend in financial wellbeing since the index plunged in the first quarter of 2011.
 
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Victorian borrowers most comfortable with level of mortgage debt: ING Household Financial Wellbeing Index

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The Real Estate Institute of NSW has proposed several options to the state government in order to encourage first-home buyers into the market. One such scheme would allow first time buyers to pay off their stamp duty over a three-year period, making it less costly for them at the time of purchase, if adopted.

Since the laps of the stamp-duty waver for first-home buyers at the end of last year, many would-be first timers have been stalled in order to save up to meet their stamp duty obligation, resulting in a drop in first home buyer activity since.

Marketing consultant Michael Willcocks, 28, who missed out on the stamp duty relief late last year could envision getting into a property much sooner, should a stamp-duty ‘lay-by’ scheme be put in place. 

“It would cut out several months of saving up the stamp duty and get me into a property sooner,” he says. 

With housing affordability a pressing issue for first-time buyers, such a scheme would reduce the initial cost of getting into a property by spreading this out over 36 months. The adoption of a stamp-duty ‘lay-by’ scheme would surely encourage more first-time buyers to get into the market. 

Currently, there is only the original $7,000 federally-supplied first-home owners’ grant on offer, which applies only to pre-existing properties and therefore does not push for the construction of new dwellings. 

We already have a housing shortage in Australia, which is expected to fall short by over 150,000 dwellings by the year 2020, going by figures released by the Housing Industry Association last year. 

Setting out schemes that drive construction of new homes and encourages new buyers into the market would benefit both the construction and real estate industry.

Other schemes presented to the state government by the REINSW look at concessions for buyers over 65 in an aim to make it easier for them to down-size their homes.

Introducing new legislation that works toward the reduction of our housing shortage, increases affordability and hence home ownership, combined with further interest rate cuts would create an up-swing that would strengthen the property market and our economy.



Robert Projeski is a leading property finance expert and the founder and managing director of <a target="_blank" href="https://%20www.amo.com.au">Australian Mortgage Options</a>. He has appeared on radio and TV and written extensively on property and finance matters.


 
 

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rprojeski-4QFJisNwt8

Stamp duty ‘lay-by’ scheme could help first-time buyers get into the market

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Aussie Home Loans executive chairman John Symond has warned a standard 0.25 percentage point easing by the RBA at its May meeting would not be enough, given the banks have lifted home loan rates since the last cash rate cut in December.
“We have a situation where since Christmas we have had two increases by the banks out of cycle. So, 25 basis points is just playing catch-up for the punter,” Symond suggests.
“If the Reserve Bank wants to make a difference and instil confidence, they now have to go more than 25 basis points and go 50 basis points,” Fairfax Media reported Symond as saying today.
Last month the Aussie Home Loans founder said the RBA was “a bit out of touch by not accepting that parts of the economy, especially small businesses, is doing it really tough at the moment”.
“As well as the Australian economy has performed relative to other economies, we could easily get into the situation where the economy could stall,” warned Symond.
“We need an injection of good news and an injection of confidence – the best way to do that is to start dropping interest rates.”
 
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John Symond says only 50-basis-point RBA interest rate reduction will cut it for borrowers

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The minutes of the April RBA board meeting have strengthened the case for a rate cut at the May 1 meeting, according to Westpac.
“We are confident that the RBA will deliver a 0.25% rate cut on May 1," Westpac chief economist Bill Evans suggests, based on his expectations that the underlying first quarter 2012 inflation data, due for release April 24, will be 0.6% for the quarter and 2.3% for the year, down from 2.5% in quarter four in 2011.
Westpac suggests the data could provide the RBA with ample scope to cut rates again in June or July given the sentiment of the minutes particularly in recognising the sharp regional and sectoral differences in the economy and the likely impact of a significant fiscal tightening.
The minutes gave a number of additions to the bank's insights around the current economic environment, the Westpac chief economist notes.
“Firstly, stronger emphasis is given to the divergences between sectors and regions in the economy.
“Whereas the governor referred to ‘differences’ these minutes refer to ‘sharp differences’,” Evans notes.
The analysis of the minutes by Westpac also noted there was recognition that "the level of non-mining investment had been flat over 2011, and recent surveys of business intentions suggested that non-mining investment was likely to remain sluggish for some time".
Noting the RBA members spent some time exploring reasons for the weakness in many of the indicators for housing turnover and building activity, Westpac concluded the minutes did not go so far as to question why there appears to have been only muted response to the recent rate cuts.
“But one can sense some degree of frustration in the likely discussion,” Evans says.
Westpac also suggests the RBA attitude towards the labour market appears to have become more realistic.
“In previous discussions the emphasis has been around the unemployment rate alone whereas the board now points out that "an easing in average hours worked and a decline in the participation rate were indicative of a softer labour market than that implied by the unemployment rate".
Evans was also encouraged to see that the board had made special note of the Westpac-Melbourne Institute index of unemployment expectations by noting that "household concerns regarding future unemployment (were) at their highest level since mid-2009".
“Probably the most surprising aspect of these minutes was the direct comment on fiscal policy,” Evans says.
“The bank specifically points out that economic conditions will be impacted by ‘significant fiscal tightening in the next few years’.
“Despite the government indicating the intention to return the budget to surplus from a deficit of around $40 billion we cannot recall the bank specifically referring to fiscal tightening in previous statements.”
“The message from the governor's statement on April 3 was that there was scope to cut rates as long as the inflation report indicated that inflation pressures remained benign.
“This message has been repeated with the additional dimension of indicating that slower growth could be expected to result in a more moderate inflation outcome.”
Finally, Bill Evans notes there was an extensive discussion at the April RBA board meeting on the funding costs of banks.
“The importance of term deposits to the banks' overall funding profile has been emphasised.
“Recall that the bank has noted that ‘since the middle of 2011 there has been a further increase in banks' funding costs relative to the cash rate of the order of 20-25bps’.”
Westpac notes that the mismatch was explained in terms of the general principle that the RBA cash rate had become a less important influence on the banks' funding costs due to competition for deposits and the increased costs of term funding.
 
 
 
 
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