Interest Rates

Will a 2 - 3% Interest Rate Rise Change The Property Market?

BY CHRIS GRAY,

CEO, YOUR EMPIRE

One of the reasons I DIDN’T have the most successful property show on TV was that I told the truth about the market as I saw it. I didn’t have any sensationalising headlines or claims that the market was going to crash to it’s lowest level yet and nor did I predict the latest greatest upswing that was about to happen in a particular suburb. I didn’t jump on the latest NRAS or NDIS fad and I didn’t strategise on how to get the biggest tax deduction.

I told viewers that I thought the market would be fine for the next 12 months and they could go off and relax and tune back in, in a years time for another update on where I thought it was headed. That’s not great for viewer numbers, but that’s what I honestly believed was right. In the ten years I was on Sky News Business, I don’t think anything really changed in the market, especially when you look back in hindsight.

And that’s because I am an investor that invests for decades after decades. If I buy a fantastic property in a great location, why would I ever sell it? I’m not clever enough to predict the highs and lows of the market and so why even worry if you’re investing for the long term.

I think exactly the same now. Sure, interest rates have risen and are likely to rise by more in the future. How far will they go – I’m not sure.

10 years ago we were all used to paying 7%, 8%, 9% and so if you put that into perspective 3% - 4% is still cheap. So is 5% or 6%. It’s just because we’re used to paying 2% - 3% that we’re in shock.

But we really shouldn’t be in shock or panicking to sell as surely everyone including Blind Freddy knew they were going to rise. Even if you didn’t have that foresight, the banks will have done it for you when they assessed your serviceability for a mortgage, especially if you’ve done it recently after the Royal Banking Commission in 2020.

A 1% - 2% rise is $10k - $20k on a $1m mortgage and sure that’s a fair amount of extra money to find. However, it might cost you less if it’s an investment property as you might be able to claim up to 50% back in tax. Rents are starting to rise too which will counteract that extra cost. Think yourself lucky that you haven’t got a $10m mortgage as each 1% rise would be another $100k you’ve got to find.

What I do know is that a lot of property is still in very short supply, especially if you’ve bought in the blue-chip areas around our major capital cities where there’s three storey height limits and every property is butt up next to the next one and therefore no more supply. There’s more people going back to work in the offices and so the demand should still be there. The reason inflation is going up is that people do still have money to spend and there’s still plenty of them buying property.

Sure, some property is going to drop and that will cause a number of people some issues, especially if it’s in massive supply and there’s limited demand. There could be temptation to panic sell and that might be right for some people. But I think for the masses, most would regret it down the line as what I remember from the GFC, the credit crunch and COVID, most markets did tend to bounce back within a year or two.

Lots of people took advantage of that uncertainty in the past and were rewarded significantly when it did bounce back. A number of our Sydney clients picked up a $1m property in 2020 for $900k - $950k to see it bounce back to $1m 6 months later and then up 25% to $1.2m - $1.3m in the 2021 upswing that we all saw last year. The Melbourne and Brisbane offices had similar examples.

I’m definitely not an economist, a financial planner or a practising accountant and do not know what the future holds. I base my views on what I have experienced over the last 30 years investing and what I have learned from experts around me. I tend not to listen or get my advice from friends, family and colleagues unless they are specialists and making money themselves from doing what they’re preaching to others.

I can’t control interest rates and so I don’t waste any time worrying about them. Why waste time on worrying about something you can’t control? I concentrate my time on practical things I can control, such as making sure I have enough cash buffer to last me through the short term.

ABOUT THE CONTRIBUTOR

Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor professionals – searching, negotiating, renovating and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au and follow Chris on Facebook: @ChrisGraySydney