A window of opportunity for savvy property investors?

The Reserve Bank of Australia (RBA) has increased the country’s official interest rate by 400 basis points in only 15 months. This has caused a spike in mortgage interest bills for many Australian property investors. While mortgage interest payments can usually be claimed as a tax deduction, higher rates mean more negatively geared landlords.

This, in turn, is making some landlords rethink their positions with recent PropTrack data showing a notable increase in landlords exiting the market across Australia. In NSW, for instance, 28.0% of properties sold in July on realestate.com.au had previously been listed for rent since it was last purchased. That’s up from 21.5% in July 2022, and 15.2% in July 2019, pre-pandemic (see table below).

More investors selling up spells bad news for many of Australia’s capital city rental markets, given that many are already grappling with an existing shortage in rental properties that’s seen vacancy rates plummet and rents soar.

A potential window of opportunity

 Yet, in every challenge lies opportunity. That’s because there’s a good chance the RBA’s next move will actually be down, with Westpac anticipating rate cuts in the September quarter of 2024. The nation’s largest home loan lender, CBA, is even more bullish, forecasting interest rate cuts from March 2024 to end the year at 3.1%.

Furthermore, many market commentators believe Australian property prices will continue their current upward trajectory, with:

If these predictions hold, investors who enter the market now could benefit from lower interest rates in the near future, coupled with potential capital growth as property prices keep on rising.

The long-term perspective

 While understanding these short-term dynamics can offer tactical advantages, remember that property investment is fundamentally a long-term endeavour. It’s about building wealth over years, even decades. The cyclical nature of property markets means there will be periods of both highs and lows; the key is to stay committed and have a robust strategy to weather all conditions.

As part of that, you want to focus your efforts on buying quality, investment-grade properties in quality locations. As that way, history suggests you’ll be better rewarded, whatever comes to pass in the short term.