Monday, 27/5/2024 | 14:45
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The upside of a high interest rate environment

Interest rates have risen sharply over the past few months and this may instinctively feel negative as the cost of borrowing money increases. But as any seasoned investor knows trends are cyclical – interest rates rise and fall as do property prices, and property investing is long term. Short term perceptions, opinions and jitters shouldn’t scare you and it in fact, it may be a very good time to capitalise on some of the benefits presented during time of high interest rates.

When interest rates go up, fewer people can afford to buy a property to live in, so the demand for rental properties increases. If you are invested in a buy-to-rent property, you may be able to increase the rental amount you charge, as supply of rental properties may not be able to keep pace with demand.

If you’re in the market to buy a new investment property, this may be a great time to get in. Property prices are largely influenced by supply and demand, and as interest rates rise, the demand for properties decline. It becomes a “buyer’s market” so you may be able to snag a good deal. Even more so if you are a cash buyer, and not impacted by interest rate fluctuations. The lower the price you pay, the better your profit when you sell the property one day.

On a much wider scale, rising costs in terms of labour, machinery and materials could mean fewer property developments which will impact on the long term supply. This adds to the scarcity, benefitting anyone who owns property, and property values increase.

Speaking of developments – if you buy a property off plan in a high interest rate environment, you can get the best of both worlds. You only need to pay for it when it’s completed - anything from year or two down the line. By then market conditions may be more normal with more equitable interest rates.  You can lock in capital appreciation over the period of construction, and you will only pay for it in the future.  If the interest rate cycle has moved downward again, you’ll benefit from strong returns.

Don’t make any knee-jerk decisions in the current environment, or be influenced by naysayers. Think about where you want your investment to be in 10 or 20 years time and use the current environment to maximise your opportunities.