Five ways to not get beat down by Australia’s high interest rates

Sydney, Australia - 3rd June, 2019: New housing construction on the outer suburbs of Sydney.

There’s always something growing somewhere in the country is the view of real estate buyers agency InvestorKit.

All hope is not lost for those struggling to cope with rapidly changing property market conditions, according to buyers agency InvestorKit which shared five rules they follow during high rate periods.

InvestorKit founder and head of research Arjun Paliwal – who has a portfolio of over 17 properties – said conventionally it might seem like a terrible environment to be a property investor but there were ways to do so successfully.

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One red roof amongst rows of houses in rural urban sprawl.

High interest rate periods need to be navigated well by investors.

He said InvestorKit and Confidence Finance put together five principles to guide themselves and their investors at a time when some buyers’ borrowing capacities and budgets were struggling.

The guides were “designed to navigate economic uncertainty and high-interest rate environments”, he said.

InvestorKit’s 5 rules for investing during high interest rates:

1. Look at undersupply

In high interest rate atmosphere, Investorkit suggests that instead of looking at demand – which could be weakened – investors should turn to supply levels as they offer more certainty. Investors could gain some confidence by analysing undersupply in a market. Signs of undersupply include lack of properties for sale, under construction and available for rent. Those indicators could help investors make a more informed decision around a suburb and get better clarity during uncertainty.

InvestorKit founder and head of research Arjun Paliwal.

2. You matter more than the market

Instead of being distracted by macro trends, investors should engage in local markets that operate on unique cycles. Local markets have pockets where prices are rising and others where they are declining. To always be ready to invest, InvestorKit recommends saving 25 per cent of your monthly income, maintaining a buffer of $25,000 to $50,000 per property before considering the next purchase, and setting minimum rental yields and purchase price limits.

3. Local economy matters more than the macro-economy

It is vital that investors are aware of local indicators that signal a thriving local economy. Examples of local signs are unemployment rates, industrial diversity, and spending per capita, Gross Regional Product (GRP), airport passenger movements and internal migration trends. Together, these indicators allow investors to see the bigger picture in a local economy.

Aerial view directly above new rural housing development, mostly grey roofing, some green landscaping, trees, orange-coloured street trees.

InvestorKit holds to the view that Australian assets tend to outperform cash.

4. Doing something is better than nothing

High inflation goes hand-in-hand with high interest rates. Irrespective of interest rates, asset values tend to increase. Amid high inflation, cash hoarded in banks tends to lose value as investments, InvestorKit said. It said the 2022 Vanguard Index Chart demonstrated that in the past 30 years, Australian assets consistently outperformed cash even during high interest rates in the 90s and noughties.

5. There’s always something somewhere growing

The capital cities of each state are interwoven with regional areas. Consequently, InvestorKit believes you can find healthy and robust growing regions in any economic condition.

(Source: InvestorKit)

– By Tharangini Thirumurugan

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