The Reserve Bank has recently cut interest rates to a record new low. Natalie Sirianni predicts what impact this may have on pharmacy values
At its meeting on Tuesday 3 November 2020, the Reserve Bank of Australia (RBA) Board decided to reduce the cash rate by 15 basis points to 0.1%.
This is the first cash rate change made by the RBA since the reduction to 0.25% on 20 March 2020. We are now well below the cash rate from September last year, where the rate was 1%.
So, what does this mean for you and your pharmacy?
Given that most pharmacists rely on bank finance for the purchase of their pharmacy businesses, this will imply a reduction in interest payments to the bank and therefore a cost saving for the pharmacy. (Assuming the banks pass the reduction through).
The average sale price for the last 30 pharmacies we have sold was $2.77 million. Assuming that the buyer uses bank finance to fund the purchase to around 70%, for instance, the 0.9% reduction in any interest rate charged by the bank, (based on the 0.9% reduction in the RBA cash rate from September 2019 to now), will lead to a saving of approximately $17,400 in interest per annum.
This will represent a large saving for you and for your business.
Lower interest rates are also likely to be a positive for pharmacy buyers and therefore improve buyer demand for buying pharmacies.
There are also possible impacts on retail sales, other expenses and economic growth.
*We invite you to participate in our Attain Pharmacy Market Sentiment Survey. This short survey (12 multi-choice questions in total) can be completed by all pharmacists interested in buying a pharmacy or who currently own a pharmacy.
We run this survey every 4 months to track the market sentiment and the pharmacy business sales market trends, so we can provide you with up-to-date data on the market.
We will release the results to you so that you can get insights into the pharmacy market for your planning and strategy purposes.
Here is the link for the survey
Natalie Sirianni is director, Attain Business Brokers
If you have any questions about current pharmacy market conditions and how the interest rate change may affect you, please feel free to contact me at anytime on 1300 ATTAIN (288 246). I look forward to discussing with you further!