Higher interest rates present an outstanding opportunity for investors

A legendary property industry veteran says the current high interest rate environment presents “outstanding opportunities” for property investors in the next 12 months, as competition for quality properties is less fierce and buyers can negotiate lower purchase prices.

Gold Coast real estate titan Andrew Bell OAM says high interest rates “have created a fearful environment that has removed many buyers from the market and will continue to do so over the next year.”

Official interest rates are currently 4.35%—their highest point in more than 12 years—as the Reserve Bank of Australia tries to tame inflation.

According to the RBA, that equates to an average retail mortgage rate of 6.8%, a level at which many homeowners and investors are struggling to keep up with repayments.

Who is Andrew Bell?

Andrew Bell is one of the Gold Coast’s most prominent business figures.

A four-decade veteran of the property industry, he’s the Chairman of the RWSP Group, a chain of Ray White franchises that has become the largest independent real estate company in Queensland.

Bell served as a Chairman of the 2018 Commonwealth Games and the Gold Coast Business and Community Committee and is a founding member of the Gold Coast Future City Group. 

He also runs a series of high-profile annual fundraising events. 

In 2016,  Andrew Bell was recognised in the Australia Day honours and was awarded a Medal of the Order of Australia (OAM) for service to the community of the Gold Coast. 

Andrew Bell’s contrarian view

Andrew Bell regularly posts market updates on his company’s website, which are always worth a read, but it’s an editorial he recently wrote for Australian Property Investor magazine that really made me sit up and take notice. 

Bell says interest rates have “an interesting effect on the psyche” of real estate buyers.

He says when rates are low, “it naturally stimulates increased buyer interest.”

“It also creates an environment where that increased volume of buyers creates a higher demand for properties that results in price increases,” he writes.

Andrew Bell says the reverse is true when interest rates rise, as many buyers “are simply knocked out of the marketplace because they can’t afford the loan repayments at the higher interest rate levels.”

He also notes that other potential buyers pull out because they “get caught up in the fact interest rates are perhaps double what they were a couple of years earlier” and feel they would be foolish to take out a mortgage at the current higher interest rates. 

This is folly, according to Andrew Bell.

“The reality is that the best time to buy is when interest rates are nearing their peak.” 

“This is when you have the least amount of competition for properties and where you can bargain harder on the purchase price when many owners are actually selling because they can’t maintain repayments on their loans.”

Andrew Bell says this is underscored by figures which show that more than 20,000 properties were sold in Queensland alone over the past year by people unable to keep up with loan repayments.

Highlighting another opportunity for investors, he points out that most of those 20,000 people will be forced back into the rental market.

Andrew Bell says buyers taking out a loan at or near the peak of the interest rate cycle, “know you can take out a loan you can afford and have the comfort of knowing that interest rates will likely start dropping perhaps a year or so later.”

“The reality is you can save a substantial amount of money by buying well as opposed to being focused on the higher interest rates for perhaps a year or 18 months.”

Why ordinary Australians need an investment property to get ahead

Related

Seven things we can learn about property investment from Taylor Swift

Related

Final thoughts

Andrew Bell says, “The supply and demand equation continues to favour price growth for years to come, as there is no quick fix to the (housing) supply problem in Australia.”

So, despite the highest interest rates in 12 years, “the next year presents amazing opportunities for those who can see the advantage of buying when interest rates are higher in the knowledge they will be on the decline in a year or so.”

He concludes by quoting Warren Buffet, the world’s most famous investor.

“Be fearful when others are greedy, and be greedy when others are fearful.”