Deputy Governor Ric Battelino of the Reserve Bank of Australia is optimistic that there would be turnaround in the property and real estate sectors as an encouraging shift of financing models will pave the way for future growth.

In a speech to the Property Council of Australia in Brisbane, Mr. Battelino said that without downplaying the difficulties faced by the sector, he urged developers "to shift towards more equity and less debt."

Mr. Battelino noted that this would lower the arrears in paying loans.

He added that the RBA has been closely monitoring the liabilities in the property sector as this could redound to the over-all economic performance and "stability of the financial system.

He is confident, though, that "borrowing for housing is broadly growing in line with income, house prices are stable and there is little appetite for other forms of debt. From the Reserve Bank's perspective, this seems to be a satisfactory state of affairs."

The RBA's cash rate increases had actually added about A$3,600 annually to mortgage repayments worth an average of A$300,000.

Mr. Battelino said that the decline in lending in Australia is moderate compared to that in other economies. He clarified, however, that with regards to the downside of the government's financial policy restraint, "that cycle is currently being played out."

Real Estate Institute of Australia (REIA) president, Mr. David Airey said in a statement that given the affordability issue on Australian homeowners the rate freeze would be a temporary respite.

Australian homeowners are now paying $446 more on home loans compared to a year ago, Mr. Airey said.

"The Reserve Bank of Australia's (RBA) decision to keep official interest rates on hold is what was needed given the affordability pressure on Australia homeowners," said Mr. Airey.

Just last month, the REIA reported in the Deposit Power Housing Affordability Report that affordability has reached a level that has not been since the third quarter of 1990 - when the quarterly average banks' variable mortgage rates were at approximately 16.4%.

The said interest rate freeze implemented by the RBA came as a surprise to the market, anticipating a tightening in the country's financial position as inflationary pressures tend to rise with domestic expansion.

However, the said move by the RBA would bode well for belligerent sectors including the construction business, which according to latest figures from the Australian Industry Group indicated.

Construction Numbers

In a related development, the latest Australian Industry Group/Housing Industry Association Performance of Construction Index (PCI) dropped 2.4 points to 40.8 in September, which is lower than the 50-point level separating expansion from contraction.

AI Group director public policy Peter Burn said on Thursday that the sector was suffering weak demand, particularly in the house building sub-sector and appealed to the RBA not to raise the interest rate.

"Construction companies continue to be plagued by weak market demand and on-going delays in project starts as private demand struggles to fill the gap left by the drying up of projects funded by fiscal stimulus measures," he said in a statement.