is director of Metropole - Properties and an accomplished property investor and developer. Pam has authored many articles on maximizing property investment returns and is co-author of the top selling book "All You Need to Know About Buying & Selling Your Home" www.metropole.com.au The latest interest rate increase will not only cause hardship to home owners- but also to tenants. Rents for many properties are likely to increase substantially over the next year...find out why in this insightful piece by Pamela Yardney.
The latest interest rate increase will not only cause hardship to home owners- but also to tenants. Rents for many properties are likely to increase substantially over the next year.
The latest interest rate increase by the RBA, which is the 11th consecutive increase since 2002 and the fourth increase in just over a year, will put pressure on the already straining rental market in our capital cities.
With home loan rates now above well above 8%, it's going to be harder for many young families to buy their own home.
Think about it… the recent property boom means they will need a larger deposit. But at the same time higher rentals as well as the increased cost of living means it is harder for them to save for their deposit. This is compounded by the fact that higher interest rates will decrease their serviceability for loans – in other words they can't borrow as much.
So if they can't buy, what will they do? They still have to live somewhere, so they will rent.
The problem is we currently have historically low vacancy rates and the law of supply and demand means there is only one way for rents to go – UP!
We already have an acute shortage of housing for both owner occupiers and tenants, and the latest interest rate increase will only make things worse.
With all the news about the world's economic problems and the possible effect on Australia, many developers are wary and holding off committing to new developments. At the same time they are finding that lenders are more cautious about lending for large-scale developments.
This means an ever increasing housing deficiency.
While savvy investors with a long term perspective are taking advantage of the current property markets, many beginning investors are holding back in what they see as uncertain times. This has resulted in fewer new rental properties becoming available for tenants at a time when there is already an acute shortage in many suburbs.
So only one thing can happen – rents will continue to increase.
Another consequence is that tenants will not move house as frequently – it will be too hard for them with so few properties on the market.
The conclusion is inescapable - vacancy rates will fall further creating more competition amongst a bigger pool of tenants.
Our research suggests that rents for many properties, and particularly apartments, in the inner suburbs of Melbourne, Sydney and Brisbane will increase by at least 10% over the next year.
While this may be bad news for tenants, it is good news for investors.
