How will rising interest rates impact investors? (from the Canadian Real Estate Wealth magazine Dec. 16, 2014)
Read more: Most economists agree that interest rates will rise in 2015 – possibly as early as May – but property experts say the ups and downs of interest rates should never be the ‘be all, end all’ for an investor.
Eddy Boudiwan, head of real estate investments at Real Estate Rangers & Taft Forward Management Joint Venture, says: “As long as you have a decent fixed rate and controls over your debt (the mortgage on the building), buy in growth markets and manage your assets impeccably, you should do very well over the long term.”
A recent poll, which asked CREW readers whether a rise in interest rates in 2015 will be good or bad for investors, found that the vast majority (84 per cent) consider it a positive.
Ken Davidson, partner at BDO, agrees.
“It should allow for a strengthening in the rental market,” he says. ”New homebuyers will find it harder to purchase their own home and, generally, that is who most of the landlords are catering to in the rental market.”
However, Davidson does admit that there are scenarios where a rise in interest rates would be bad for landlords.
“It could be bad for a landlord if they are leveraged and they are in a community with slow turnover and not able to increase rents due to provincial rules,” he says.
But for landlords who have invested in growth markets, the scenario is a good one.
“When interest rates rise, the demand for rentals increases because fewer Canadians will convert to home ownership,” adds Boudiwan.
“The rental supply is, in essence, fixed because very little rental buildings are constructed – a great scenario for landlords in growth markets. The above factors will push rents up and therefore increase the value of the assets.”