Navigating the Property Investment Landscape Amidst Record Interest Rate Rise

The recent 4.25% cash rate rise within a mere year and a half marks the fastest increase in the history of the Reserve Bank of Australia (RBA). For mortgage borrowers and property investors, this surge translates into heightened pressure levels, if not outright trouble. However, at Caifu Property, we firmly believe that even in the face of escalated interest rates, your investment journey need not come to a halt (especially with the rate rise freeze).

Undersupply: The Ace in Uncertain Times

During periods of uncertainty, finding certainty becomes paramount. In the realm of property investment, the dynamics of demand and supply wield unparalleled influence over prices. Between the two, which factor offers a greater degree of certainty?

Demand, fuelled by population growth, increased income, accessible credit, lower acquisition costs, buyer confidence, and more, drives property prices upward. The higher the demand, the more likely prices will surge.

Supply, determined by the number of properties for sale, for rent, and under construction, impacts prices inversely. The lower the supply, the more likely prices will escalate.

In today’s high-interest rate environment, where many demand drivers are either weakened or require a long-term perspective, supply analysis emerges as the more certain factor. Instead of focusing solely on areas driven by speculation or demand, investors gain confidence through a thorough analysis of supply levels.

Examining Undersupply:

Undersupply for Sale

  • Current for-sale listings vs. changes over the past 1, 3, 5, 7, and 10 years.
  • Stock on the market as a proportion of total properties in the area.
  • Stock for sale compared to monthly average sales volume.
    We observe a negative correlation between current established supply levels and the latest 1-year price growth. Areas with lower than the past-10-year average supply tend to outperform those with higher supply.

Undersupply for Building

  • Building Approval rate: Incoming Building Approvals as a percentage of total established stock.
    While there is no clear correlation between Building Approval rates and price growth, low Building Approval rates provide more certainty.

Undersupply for Rent

  • Vacancy rates: Examination of the current rental market supply level.
    Low or declining vacancy rates lead to healthy rental growth, reducing mortgage repayment pressures. They also serve as indicators of a recovering economy when analyzed alongside job advertisements and projects.

In a climate of soaring interest rates, understanding and leveraging undersupply dynamics is the linchpin to sustained property investment success. At Caifu Property, we advocate for a strategic approach, where data-driven analyses of supply levels become the guiding force. As you navigate this challenging landscape, remember that informed decisions grounded in comprehensive supply analyses pave the way for thriving property investments.

Got questions? Feel free to contact us and our team will be happy to help you out.