The Impact Of Interest Rate Fluctuations On Purchasing Versus Leasing Commercial Or Industrial Property
If you’re planning to buy/lease a commercial property or industrial property in Australia, the chances are high that you have done enough research on how interest rates affect the amount you’ll end up paying. But, you might not realize that the interest rate doesn’t remain constant, and the rise and fall of interest rate havea different impact on the real estate market. The things might not go as you have planned.
The property values in Australia do fluctuate with interest rates. When the interest rates are low, it gives more buying power, which means there will be lots of investor who will be willing to put off their plans to purchase.Since obtaining a loan becomes more affordable, people will be more likely to take a loan to invest in a property.
But with the increase in the demand for property, the property values start rising as all the cheaper property will be scooped up by the smart investors, and the properties become more challenging to obtain.
Besides, the inverse effect is also real. When interest rates are high, people will be less willing to take a loan and invest in the property.And with fewer people looking to buy, the value of the property will stagnate or decline.
So, when the Interest rates increase,the demand for property decreases, and it’s not the best to invest, right? But let me tell you rising in interest rates don’t reduce the demand for property, it shifts the demand forrenting/leasing a property. As very fewer people can qualify for loan, so they would prefer to lease a property than to buy.
Interest rates play a significant role in property demand and value so, it’s essential for investors and buyers to keep an eye on interest rates and where they may be heading.
Current situation of Real estate industry in Australia – The impact of coronavirus (COVID-19)
what will happen to the price/rent of the property? After the outbreak of Covid-19, it’s one of the main concerns of people.
The share market has been facing huge losses due to the outbreak of Covid-19. And for a lot of people whose wealth istied up in the share market, their wealth has been diminishing. As a result, the capacity to use that wealth and invest incommercial and industrial real estatehas been reduced.
Recently, the Reserve bank has also cut the rates, which is a piece of positive news, as it helps to keep the price of properties stable or go up.
For a buyer, if you have a secure job/earning, you are in a better position as many of the buyers have been taken out due to coronavirus impact on the economy. Similarly, for a seller, things might go weaker unless you need to sell the property for some reason; if you can defer it, the price will undoubtedly get back to normal once the demand starts increasing.
It’s a tough time for the investor too. For example, in Sydney, due to the oversupply, the rents are already downward. But an investor can be in a better position by investing in a property during this price fall. The downward fall is most likely to go away soon.
No need to panic, 2020 is going to be a hard year for the economy, but eventually, things will go back to normal. Property values will experience far less volatile outcome compare to other markets, it’s not a liquid asset and will remain as a consumption good
