How rising interest rates can benefit property investors in Australia

After implementing twelve interest rate hikes since May 2022, the RBA has finally decided to hit the brakes on interest rates during its July and August meetings. This welcome respite brings relief to borrowers across the country, however there are talks of more ‘rate pain’ in the near future.

While risk-adverse investors choose to step back and wait for more certain conditions, smart investors can look beyond the initial concerns of rising interest rates and seize opportunities to position themselves for long-term success in the Australian property market.

Why rising interest rates isn’t necessarily bad for property investors

For property investors who are able to hold onto their property investments, a high interest rate environment can present some valuable opportunities.

As interest rates rise, the cost of holding an investment property increases. This creates attractive purchase opportunities as investors burdened by high interest rates look to offload their property assets quickly. By capitalizing on these opportunities, smart investors can acquire properties at favourable prices.

Additionally, mortgage holders under financial stress may be compelled to sell, potentially increasing the supply of properties for sale or driving demand for homes in more affordable areas.

In contrast, buyers who adopt a “wait and see” approach may miss out on valuable market opportunities.

With interest rate cuts forecast in 2024-25, some investors may regret selling at the bottom of the market.

Rising rents and higher yields

Rising interest rates have contributed to increased demand for rental properties, as some individuals opt to remain in the rental market rather than taking on higher borrowing costs of a mortgage. This, coupled with a chronic undersupply of rental accommodation, has driven upward pressure on rents. For property investors, this trend helps cushion the impact of rising interest rates and supports higher yields.

Currently, Australia’s rental market favours landlords, with a national vacancy rate of 1.1%—well below the decade average of 2.8%—and asking rents are at historical highs nationwide.

What can I do about higher interest rates?

During times of high interest rates, maximising returns becomes crucial for property investors. To offset the additional ongoing costs associated with rising rates, there are a few simple steps investors can take:

1. Review rents to help ensure cash flow is optimised and adequate returns are being generated.
2. Consult with a mortgage broker to minimise cashflow impact of higher interest rates and assess current loans and identify opportunities for reducing repayments.
3. Focus on long-term wealth creation strategies that increase equity to strengthen performance of your investment portfolio.

While rising interest rates may initially cause concerns for property investors, they also present significant opportunities to make well-informed investment decisions.

Seek expert guidance and support in navigating your investment journey. By understanding the dynamics of the market and taking strategic actions, investors can position themselves to capitalise on the evolving landscape, achieving long-term success in the Australian property market.