Rising interest rates can be a daunting prospect for potential homebuyers, but there are still many benefits to buying property even in this environment. One of the biggest benefits is capital growth.
Capital growth is the increase in the value of your property over time. It is one of the key ways that you can build wealth through property ownership. Even if interest rates are higher, if your property value is increasing at a faster rate, you will still be making a profit.
In Australia, the average property value has increased by around 6% per year over the past decade. This means that if you bought a property for $500,000 10 years ago, it would now be worth around $1.2 million.
Of course, past performance is not indicative of future results, but it does give us a good idea of what to expect. If interest rates only rise by a few percentage points per year, then capital growth is likely to remain strong
Worried about the Recent Interest Rates Rise? Let’s Look into the Positive Side
Less Competition
Less competition is one of the potential benefits of buying property during rising interest rates. When interest rates rise, some people are unable to afford to buy property, which can reduce the number of buyers in the market. This can make it easier to find a property and to negotiate a good price.
However, it is important to note that competition is likely to increase again when interest rates settle down. This is because people who have been waiting for the right time to buy property will likely start entering the market. Also Check: 5 Reasons to Buy Property in Melbourne Now
Therefore, if you are considering buying property during rising interest rates, it is important to act quickly to take advantage of the reduced competition. You should also be prepared for the possibility of increased competition when interest rates settle down
Opportunity to buy at a discount
One of the potential benefits of buying property during a rising interest rate environment is the opportunity to buy at a discount. When interest rates rise, the cost of borrowing money to buy property increases. This can lead to a decrease in demand for property, which can put downward pressure on prices.
As a result, property owners who need to sell their properties may be willing to accept a lower price in order to attract buyers. This can create an opportunity for buyers to purchase properties at a discount.
For example, let’s say that you are interested in buying a property that is worth $500,000. In a market with low interest rates, you might expect to pay full price for the property. However, if interest rates rise and demand for property decreases, you may be able to negotiate a purchase price of $450,000 or even lower.
This could save you a significant amount of money upfront, and it could also put you in a good position to generate higher rental yields. If you are able to rent out the property for $2,000 per month, your rental yield would be 5.33% if you paid $450,000 for the property. However, your rental yield would be only 4% if you paid $500,000 for the property.
Of course, there is no guarantee that property prices will fall during a rising interest rate environment. However, the opportunity to buy at a discount is one of the potential benefits that buyers should consider.
Long-term investment potential
One of the main reasons why people buy property is for its long-term investment potential. Property prices have historically trended upwards over the long term, even if they may fluctuate in the short term. This is because property is a tangible asset that is in limited supply.
Therefore, even if property prices decline in the short term due to rising interest rates, they are likely to recover and continue to trend upwards over the long term. This means that buying property during a rising interest rate environment can still be a good investment for the long term.
For example, let’s say that you buy a property for $500,000 during a rising interest rate environment. Even if the value of the property declines to $450,000 in the short term, you can still expect to make a profit on your investment over the long term. This is because property prices are likely to recover and continue to trend upwards over time.
In addition to the potential for capital growth, property can also provide a regular stream of income from rent. This income can help to offset your mortgage repayments and other expenses, or it can be used to supplement your income from other sources.
Wrapping Up
Of course, there are also some risks associated with buying property, even in an environment of rising interest rates. For example, if interest rates rise too high, it could make it difficult for some people to afford to buy property. This could lead to a decline in property prices.
However, overall, the benefits of buying property outweigh the risks, even in an environment of rising interest rates. If you are considering buying property, it is important to do your research and speak to a financial advisor to make sure that it is the right decision for you.
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