How the RBA cash rate cut will affect commercial property

Not everyone was expecting the RBA to further ease the cash rate when its board met last week.

Some felt the board would simply "keep its power dry", and just wait to see how the outcome of the June 17 election in Greece unfolded.

Some economists like Saul Eslake of Merrill Lynch felt that the $2.5 billion of cash payments by way of government compensation for the carbon tax would serve as "enough stimulus" for now.

But maybe, such thinking took too simplistic a view of things.

Despite the RBA's fears of an underlying growth in wages, monthly inflation figures have sunk to zero. Furthermore, the corporate sector confidence had also slumped.

However, the tipping point was probably the trading losses suffered on Monday this week on the stock exchange — wiping off around $26 billion in value.

Maintaining your perspective

While international conditions may have softened, local share investors nonetheless appear to have overreacted with their interpretation of the likely effect for Australia. And what the RBA is desperately trying to do is interrupt the cycle of negative consumer confidence.

As you will recall, one of my recent articles explored in some detail Australia's underlying growth prospects, low unemployment, healthy financial system and solid investment pipeline.

And this would appear to now be validated by the solid GDP figures released last week, confirming the state of our economy.

Bottom line: The RBA's decision last Tuesday should give commercial property investors even more encouragement.

The shrewd money already seems to be viewing the current turn of events as purely a severe dampening of local confidence.

And once the switch clicks across to "positive", the anticipated surge in consumer activity will reward those who have based their plans on the underlying fundamentals , rather than unwarranted fear.

Therefore, as a commercial property investor, you need to fully satisfy yourself that everything is as you are being led to believe.

If not, you're missing out on genuine opportunities by "running with the herd". And last week's decision by the RBA should serve as a wake-up call for all commercial property investors — because rates will now be on hold for the foreseeable future.