Commercial Property Prices May Begin to Fall

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Monday, October 19th, 2015
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The central bank says there is an increased risk of a drop in office values, which could weigh on future economic growth.

The Reserve Bank said an influx of investment from overseas has led to an oversupply of office space in some cities, particularly Perth and Brisbane.

Yields for owners of commercial property have subsequently fallen to new lows in recent years.

“The risk that prices might fall in the future has therefore increased, particularly if global interest rates were to rise or foreign investor demand was to weaken,” the Reserve Bank said in its bi-annual Financial Stability Review.

Previous evidence suggests price cycles in the commercial property market tend to be more extreme than elsewhere, it said.

The risks of falling values to the financial system have been lessened by a significant decline in banks’ exposure to commercial property since the global financial crisis, the RBA noted.

But growth in commercial property lending has picked up in recent years, it said.

On the plus side, the RBA said the end of the mining boom has had little impact on the commercial property market.

“In the non-mining sector, business finances generally remain in good shape and indicators of financial stress are low,” the bank said.

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