Wednesday 13 September 2023

To Invest or Not to Invest, That is the Question - Part 2

Part 2 - Property Investment in High Interest Rate Environments

In Part 2 of investing in property in a high interest rate environment and assessing your personal suitability to do so, we will continue to unpack the information amassed by financial and economic gurus, Arjun Paliwal of InvestorKit and Redom Sayed of Confidence Finance in their comprehensively researched whitepaper, ‘5 x Rules for Investing in High Interest Rate Environments.’

When considering property investment, Paliwal and Sayed say it is essential to know the numbers and how to break them down. It is critical for the would-be investor to stress test an investment prior to committing to it, and getting the help of a financial planner and accountant to crunch the numbers is critical to an investment’s suitability for your personal financial situation.

It is imperative to establish how to manage risk, for example the buffers you need for a particular property, minimum rental yields, purchase price limits and your percentage of net savings per month both now and estimating into the future. The current environment is a fantastic litmus test as if you are satisfying tests of stress with the current high rates, but again, your financial planner and accountant will be best placed to assess risk.

For those who already have a property portfolio, when considering a new property, the same in-depth number crunching applies before one takes on more risk in their property portfolio. Very few people buy property outright in cash. As mentioned in Part 1, the vast majority of property investors invest with mortgage debt - the most common Loan to Value being 80%. So, any additions to an investment portfolio need to take into account other assets and debt. In general terms, Paliwal and Sayed also stress that Australia has not had two negative calendar years of property price growth in over 40 years. The last time this occurred was in the 1970s. This shows how resilient the market is and how quickly adjustment periods can pass. The Sydney market is already showing property price increases over recent months.

While the Sydney market fell quickly when rates began to rise last year due to panic and sensitivity after being so used to historically low rates, investors are now more accustomed to rises and for the vast majority, individuals’ positions are far stronger than anticipated in the current high rate environment. With mortgage delinquency incredibly low, property supply dwindling and recent price declines invariably very short, there is a promising return in confidence across the real estate market.

If you are considering an investment property, Cramer offer a range of architecturally superb properties with outstanding amenities in fantastic locations. Contact the Cramer team to learn more.

Disclaimer: This information and any content provided is general in nature and should not be taken as investment advice. Cramer Property are not liable for actions taken based on this content. Always seek advice from relevant professionals such as legal, financial and accounting experts.

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