In the past, sharp increases in interest rates have resulted in significant reductions in “new construction”.
When new construction slows, “occupancy demand” for existing properties begins to improve, hence putting upward pressure on rents.
The effect of this is improved cashflow positions which may offset any expected reductions in the property value.
Agree or disagree?
Cheers
JeffOriginally posted by Ibuycashflow:In the past, sharp increases in interest rates have resulted in significant reductions in “new construction”.
When new construction slows, “occupancy demand” for existing properties begins to improve, hence putting upward pressure on rents.
The effect of this is improved cashflow positions which may offset any expected reductions in the property value.
Agree or disagree?
Cheers
JeffIt can also have significant impact on investors depending on the extent of debt in a rental property, as for the highly geared the interest increase has often exceeded the rent increase.
Now the circumstances you are talking about has another rental adjustment, as when unemployment increases (cause thats what happene .. when building stops ) ppl feel if they are going to be out of work they move to the coast, (out of Sydney & melb ) cause its cheaper and you can always go to the beach. This keeps will tend to drop vacancy rates.
This effect holds rents down, until the economy starts to recover, ppl come back to the big smoke for the jobs … and life goes on.
Of course this is all pre Bubble, and we all know that things are different now….only time will tell.
Dont forget population growth. As property investors we should welcome as much immigration as possible. I am not sure of the figures but I think on average we have about 100k people a year net migration into our great country.
This has also helped the Boom.
Originally posted by yack:Dont forget population growth. As property investors we should welcome as much immigration as possible. I am not sure of the figures but I think on average we have about 100k people a year net migration into our great country.
This has also helped the Boom.
I think ppl with vested interests have been playing with these figures.
For starters they do not reflect migration out …yes it happens,
I said <<<<100k people a year net migration>>>
You said <<<<For starters they do not reflect migration out …yes it happens. >>>>
My figures are rough and net means in less out – i am not really into statistics.
So what about from a Commercial Property point of view. Can we see more demand for second and third tier properties as the demand for nice new office blocks and retail shops slows.
As construction costs rise so do occupancy costs (breakeven rents & opex). Do businesses control their overheads while still attempting to grow? Do they continue to buy new or do they buy second hand?
One of the major global property investment companies is applying the strategy that higher interest rates will create occupancy demand for existing buildings. I personally have experienced similar in the past.
While not a foregone conclusion, price elasticity of demand cannot be overlooked.
Any other views?
Cheers
JeffOriginally posted by yack:I said <<<<100k people a year net migration>>>
You said <<<<For starters they do not reflect migration out …yes it happens. >>>>
My figures are rough and net means in less out – i am not really into statistics.
Sorry Yack, selective blindnes on my part. I just don’t trust the migration figures that are being churned out at the moment.
<<<<I just don’t trust the migration figures that are being churned out at the moment.>>>>
I dont know about them either. I sometimes think that we are getting more people coming into the country than is stated. With all this One Nation and people not too keen on new migrants etc.
I feel there are more than actually stated. But then again – I dont know. Its just a feeling I have. We need the migrants to develop our country.
Jeff- good question
New construction declines -> Unemployment increases -> affordability reduces -> demand reduces.. but meanwhile, prices fall due to reduced demand, so affordability can increase. I think we see evidence of that happening now. If prices were still at peak, that’s when affordability is hopeless for new entrants to the market, and that’s when it’s a landlord’s market. I think the slowing of the market will lead to more FHO’s leaving our rentals and buying themselves.
Immigration, and temporary visitation (as in international visitors, such as students) ensures there’s new tenancy markets.
We lose a market (FHO’s)… we gain a market (migration/visitors)… but if the market slows on construction, and unemployment increases, then rents will be limited anyway. People have to have jobs to pay city rents (particularly in sydney).
kay henry
Hi Yack/GMH,
ABS states the following “In 2002-03, 52% of Australia’s population growth was from net overseas migration (NOM). The preliminary estimate of net overseas migration was 125,300, while natural increase was 115,200 and total growth was 240,500.”
Full link http://www.abs.gov.au/Ausstats/[email protected]/0/2C6D9DB6B7EF7C97CA2568A9001393D5?Open
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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