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Rate cut breathes life back into Australian property investors

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Thanks to the Reserve Bank's decision to cut the official cash rate to a record low of 1.75 per cent, recent trends in auction clearance rates show that property investors are heading back into the Australian housing market.

Last weekend's auction clearance rates in Sydney was at 77.6 per cent, following the previous weekend's 80.3 per cent, which is the highest level since August of last year. Despite the slight fall in auction clearance rates, last weekend's auction numbers still better compared to the same weekend last year.

Melbourne also saw strong auction clearance rates at 73.8 per cent, also continuing the trend from the previous weekend. However, there are also signs that the number of homes entering the auction market is declining, with only 744 homes going under the hammer last Saturday compared to 995 homes over the same weekend last year and 759 over the previous weekend.

According to Domain Group, investor activity is clearly on the rise with rising demand from lower-priced, higher-yielding suburbs in Sydney's west. There are also strong regional results in budget and mid-priced Melbourne suburbs. This renewed investor appetite can be credited to the Reserve Bank's rate cut, which most lenders passed on in full to the borrowers through lower mortgage interest rates.

Last year, investors have been discouraged from borrowing when the Australian Prudential Regulation Authority clamped down on investor lending, which was rising above 10 per cent annual growth early in 2015. The banks then raised interest rates on investor mortgages, hence requiring investors to stump up higher deposits.

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