Urbis Think Tank
Tourism and commercial property still struggling says Reserve Bank
Today, Ric Battellino, Deputy Governor of the Reserve Bank, described the volatile conditions in the world economy and yet again hinted at the possibility of lowering interest rates if tomorrow’s CPI is low.
However, of more importance to the property sector were his assessment of the tourism and commercial property markets. In the case of tourism, he emphasised the impact of the high Australian dollar.
In the case of tourism, the problem is not so much that foreign tourists have stopped coming to Australia but that many more Australians are going overseas. Overseas trips by Australians are running about 60 per cent higher than five years ago. Given the increase in overseas travel, it is not surprising that the traditional holiday destinations in Australia, such as the Gold Coast and North Queensland, are currently among the weaker parts of the Australian economy.
For commercial property, he laid the blame squarely at the feet of excessive borrowing, and warned that the impacts have not run their course.
In other sectors, such as commercial property, the weakness is mainly the result of investors and lenders having to deal with the consequences of over-gearing in the pre-2008 period. When too much borrowing and lending occurs, as it did in this sector, it can take many years for the excesses to be unwound. Some large adjustments have already taken place in the commercial property sector but the process probably still has further to run.
Given Urbis’ previous comments that the Melbourne office market is looking very strong, the RBA’s comments emphasise the difficulties particularly being faced in Sydney.