After 12 interest rate rises across 14 months, Australia’s fast-moving cash rate environment has reached a tipping point. While the Reserve Bank of Australia appears to have paused the cash rate for the time being, higher repayments mean some borrowers are looking to divest properties.
Other owners may take the view now is the time to sell and take profits on a property investment, rather than service the debt on it, as part of overall portfolio management.
"This is providing interesting opportunities for investors to pick up assets at attractive prices," says Warren Erfurth, Head of Portfolio Management at RMBL.
Insights for investors
When assessing investment opportunities, it’s vital to consider a variety of factors that could impact the asset through the cycle from both a risk and return perspective. These include interest rate changes, economic downturns and market volatility.
Of course, there are steps investors can take to mitigate the risks of investing in property. Being diversified across a range of assets and allocating to investment funds that offer exposure to property with a fixed return are examples.
RMBL’s Fund, which is in select mortgage investment, provides an opportunity to gain exposure to real estate that is uncorrelated to traditional property investments. Investing in the Fund also means that there’s no need to manage all the elements a direct property investment requires, such as maintenance and finding tenants.
Developments the Fund lends to include residential sub-divisions and town-house projects. It also invests in assets such as industrial sub-divisions, including warehouses and factories. It’s a simple way for investors to gain exposure to hard-to-access property developments.
Managing risks as a borrower
As interest rates rise, so too do borrowing costs for loans with a variable interest rate. The salient factor as a borrower in this environment is their ability to meet their obligations.
“It’s essential to work through a range of scenarios to ensure projects remain viable as conditions change. These include interest rate rises, and escalating input costs such as labour, materials, rates and land tax,” says Erfurth.
It’s worth noting that RMBL offers variable rates to borrowers. Each borrower receives an individual rate, based on their risk profile and the project’s nature.
Current market conditions
While it’s important to appreciate property investments have a long-term horizon, it is possible to take advantage of opportunities and adapt your strategies as the market changes. The first step in this process is to recognise when market cycles are changing.
Each investor and borrower has unique circumstances and their own view of the investing landscape.
For investors, it’s essential to assess the market on a regular basis for well-priced opportunities. For borrowers, the idea is to ensure you have taken into consideration as many different factors as possible when it comes to your ability to service your loan over its term.
For both parties, success means knowing the right time to take action, remain invested or sell, given prevailing market conditions.
