May 2022 – Interest Rates and GPS

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Where interest rates are going and the ramifications to the residential development industry is the current hot topic.

The simple answer is that there are too many factors in play to be able to provide a meaningful answer. My crystal ball isn’t that good. It may become clearer after the Federal election.

I do expect the usual “end of the world” prognosis from some elements of the media.

Like most GPS investors, I recall the pain of the days of ~16% home loan rates. We all need to take a deep breath and remember that Australia has progressed from those so called “banana republic” times.

We also need to remember that the RBA is talking in terms of percentage points and not several percent.

What do the changes mean for your investor distribution rates? It is important to remember that the GPS Distribution rates are not affected by the RBA. Your rates are determined by the competition in the industry, and the need to remain competitive to secure new loans. When the RBA dropped the rates, GPS did not drop with them, instead keeping our rates competitive to give you the best return possible. The GPS rate is still higher than savings options offered by a bank.

What do the changes mean for current and new stock coming into the market? This increase was inevitable and was only a portion of 1%. There isn’t an oversupply of product coming, migration will recommence, demand for rentals is strong and building price increases and supply issues are showing signs of stabilizing, so property will continue to sell. The pendulum will not swing drastically in the opposite direction so suddenly.

Therefore, despite the ‘end of the world’ prognosis, I remain comfortable with the product typically delivered by GPS borrowers.

Richard Woodhead | Managing Director

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