Why investors shouldn’t be overly concerned with interest rates

One Sydney property veteran has urged buyers to widen their financial focus at this time beyond interest rate rises. 

Sam Elbanna, director of Sydney-based project marketing firm Laver, has outlined how focusing on rent increases at present — rather than just rising interest rates — can open investors up to a different picture.

“Rents have elevated continuously over the past year to the tune of over 10 per cent, yet interest rates have so far only jumped to 2.6 per cent,” he said.

Mr Elbanna said that despite the ASX RBA Rate Tracker predicting yet another rate hike in November, with the potential to drag the cash rate to 2.85 per cent, property price adjustments have been marginal since last year.

“Property prices will always subdue in line with an interest rate hike, but when we see strong growth in demand and rental returns like we have over the past year and even since the onset of the pandemic, we know it is better to be in the market than out,” he said.

CoreLogic’s latest quarterly rental review for the three months to September 2022 listed national rents as having increased 10 per cent in the last 12 months, with the three biggest movers being Brisbane (13.5 per cent), Adelaide (12.8 per cent), and Sydney (10.3 per cent).

“Unit median prices for Sydney still stand strong at $680,000 — around $94,000 ahead of Melbourne prices. Like with anything we buy, we need to look at the value it represents, not just the cost of purchase,” he said.

“With property investing, there is the cost of purchase, the cost of the money to finance the purchase (interest rates), and then there is the return on investment (rents). What we are seeing is that while the cost of money is going up, the rise in rental returns far outstrips this.”

Following on from the property market boom, which was born from the COVID-19 pandemic back in 2020, Mr Elbanna said the expectation should always be that “we will see some adjustments in interest rates and consequently in property prices to curb inflation”.

“We are also seeing a drop in new listings of over 30 per cent across Melbourne and Sydney markets that essentially point toward a tightening of available stock, which will always stabilise property prices, if not lift them in due time,” he concluded.

SOURCE: Smart Property Investment  by Kyle Robbins  29/10/22