When the Reserve Bank of Australia (RBA) cuts interest rates, borrowing invariably becomes cheaper. As a result, people will get less return on their savings, become more likely to spend and drive the prices up in the process.
We know that low interest rates equate to a low cost of borrowing as well as a substantial increase in commercial property yields- as compared to that of low-risk bonds. As a result of low borrowing costs and strong demand, the commercial property sector is expected to grow quite rapidly. However, even low interest rates cannot signify ideal conditions for industrial property investment if consumer confidence is down.
The below article aims to highlight some of the main impacts that low interest rates have had on the industrial property industry.
Encourages Buying Over Leasing
As low interest rates have made it cheaper to own rather than lease industrial property, occupants are readily looking to buy. The leasing market is soft compared to that of sales as vacant building owners have a strong desire not to lease- and they will only sell at the right price. Today, investing in industrial real estate can seem unusually difficult due to low interest rates, rising prices and a pandemic that has changed the way we work and shop. However, there is opportunity abound for those who shrewdly navigate low-interest rates and uncertain economic conditions.
“We are experiencing some real investment risks due to the pandemic, so a time such as this is quite interesting. In the meantime, governments and the bank are trying to mitigate the risks,” explains Brad Hennessy, Industrial real estate broker at Just Commercial.
Refinancing Becomes Viable
Purchasing industrial property becomes more affordable when mortgage rates are low. As a result, the sales of these properties rise as more consumers can take out low-cost loans. Mortgage holders can refinance their loan, which means that they exchange their current mortgage for a lower interest rate. When interest rates are low, the demand for industrial property rises, and development companies can borrow money at a cheaper rate to finance the construction.
Mortgage rates are closely associated with interest rates, but the price of properties sold doesn’t always follow the same trend. Despite low interest rates and the rising demand for industrial properties, if the price of industrial properties gets too high, demand will curtail, causing real estate prices to plummet.
Ideal Investment Conditions for Experts
In the right situation, a low interest-rate environment can be a boon for industrial real estate investors. Despite uncertainty in the market, industrial real estate investors should position themselves to take advantage of the current environment to better establish their businesses. Between a portfolio-wide analysis and the leveraging of supply and demand, there are several strategies outside of refinancing that investors can also employ.
Between fluctuating interest rates and the coronavirus pandemic, all real estate sectors have shown to be volatile. Due to this, shrewd investments require more expert guidance than ever. The experts at Just Commercial can assist you with a sound and long-term investment strategy. Comprising a team of industry experts, Just Commercial will help find you suitable property with the utmost diligence.