Its been over 11 years since the RBA increased the cash rate (November 2010) to be exact. So with this recent increase in the rate and the likelihood of more to come, the question I’m going to try and answer here is what does this mean for those of us with investment properties and for those looking to invest?
Firstly I’m going to address those who already have an investment property or multiple investment properties.
In the past 2 years we have seen a lot of investors sell their investment properties. Some more cautious investors decided to sell as the pandemic hit, choosing to consolidate their finances in very uncertain times, others have since taken advantage of the hot sales market and significant price increases, we’ve seen as the pandemic unfolded. This spike in investors selling off has resulted in a significant reduction in the total number of properties available to rent. (Evident in the graph below)
Add to this, since 2020 property prices have increased approximately 30%, this along with the recent interest rate increase and the inevitability of more increases to come, affordability is now an issue, and the sales market has stalled significantly, a huge chunk of buyers have effectively been wiped out of the market. What do these buyers do? Well, they still need a roof over their head, so they rent!
So, what are we seeing now? More tenants and less rental properties, which equals higher rent yields and lower vacancy rates for investors.
Note in the graph below the downward trend in the number of rental properties and the upward trend in rents.
The graph above shows median rents for all properties (the black line) have increased by 18% ($422 – $500 p/w) since the 3rd quarter of 2021. Interest rates have only increased by 0.25% in that time, that’s a significant net gain in rent yields for existing investors.
The importance of regular small rent increases will be highlighted in the coming year, if you haven’t been doing them than there is a good chance the rent you are getting now could be significantly below what it should be. Its never too late to start!
For those looking to invest! Well, your ship has come in! Yes, interest rates have increased and will likely increase further, but the market has shifted, and we are now firmly in a buyers’ market. Its predicted prices will drop 10 – 15% in the coming 12 months, which is great news for those looking to invest. Whether that happens or not, who knows, but I think everyone would agree we are in for an extended period of little or no growth or maybe even some negative growth, but remember property is a long-term investment, history tells us if you hold the property for 10 years+ you should see significant growth! Short term is a gamble! So, buy well, enjoy the increasing rent yields and lower vacancies and the capital growth will come in time.
In summary, if you’re a property investor, you shouldn’t be freaked out by interest rate rises. History tells us that in a rising interest rate climate rental demand is typically higher and that means higher rents and lower vacancies. If you ensure you keep your rent in line with the market, you should comfortable be ahead of any interest rate rises.
Property Central – Penrith
*Statistics are for house’s in the suburb of Penrith and were sources from pricefinder.com.au 23/5/2022