9th Feb

Looking Beyond the Negative Effects of Rate Hikes on Property Investment

• article
• 4 mins

• Share

Rising interest rates and high inflation are having a clear impact on the property market and how investors are navigating this changing landscape. But when it comes to property, it's important to look beyond short-term market impacts to take advantage of long-term opportunities.

To combat continuing high inflation, the Reserve Bank of Australia (RBA) has yet again increased the cash rate by 25 basis points. Coming in as the 9^th consecutive increase since May 2022, this brings the cash rate to 3.35% (a 3.25% increase in just 10 months).

With the Consumer Price Index (CPI) inflation at a 33-year record high of 7.8% combined with below average expected growth for both 2023 and 2024, the economic outlook seems daunting. And despite lower energy costs, a tightening monetary policy and resolving supply chain issues, inflation isn’t expected to come down to target rates for quite some time.

But what does this mean for property investors?

While the cost of borrowing rises, it becomes more difficult for many new investors to obtain finance. And with the mortgage payments of existing investors becoming more expensive, many feel discouraged from looking for their next property.

As a result of this decrease in demand, the property market in many areas is showing signs of slowing down. But while rising interest rates can have a negative effect on the price of property, it’s important to remember that property prices are dependent on a variety of variables, not just interest rates.

Despite potentially lower valuations for property owners, rising rates can often spell out opportunity for savvy investors. And with the RBA forecasting inflation to come down to their targeted 3% by mid 2025, long-term investors should be wary of getting caught up in short-term price fluctuations and fearmongering.

How much further interest rates need to rise for the RBA to be satisfied remains to be seen. Although future rate hikes are to be expected to counter inflation, we encourage investors to take a long-term approach to their investing, manage their emotions and look for the opportunities that will present themselves in the coming months and years.