smoulder wrote: ↑Sat, 04 Nov 2023 11:54 pm
Skibidi wrote: ↑Sat, 04 Nov 2023 9:28 pm
Is there a correlation between interest rate and rental? It does seem like so.
Somewhere in this post, Wd40 was refuting it, but there is a correlation between the two. While there can definitely be something to be said for why they are not proportionate, the fact is that the interest rates increase have definitely hurt some
property owners who in turn pass on the same with interest (pun not intended) to the tenants. There are obviously some landlords who have long paid off their mortgages and should not be affected, but obviously since they saw where the general direction of rent was headed, they jumped on to the bandwagon to cash in while they can.
I still continue to refute it. It is supply and demand which determines the rents. During and after the Covid there was a sudden demand for rental units while supply was short and at that time interest rates were still low. But owners and agents started jacking up the rents.
This is classic capitalism at play. The way it works is, lets say you want to rent out your unit and then your agent places an ad in pguru. The agent gets overwhelming number of enquiries, but you just have one unit to rent out, how do you choose whom to rent it out to? Ofcourse the highest and the most desperate rent seeker, so lets say a 3 bedroom HDB unit was going for 2.3k. Suddenly it can easily go for 2.6K. Then this frenzy feeds on itself and in a matter of couple of years, the rents just keep escalating to 4k. Interest rates have nothing to do here. Many HDB owners have fully paid off their flats and their rental yields are now around 8%!
Now, lets talk about the reverse, which is exactly what is happening in Malaysia. They have a huge overwhelming supply of units. Every months so many new developments come up and they keep their rents depressed. So much so that inspite of close to 0% downpayment and no ABSD etc, buying properties and renting them out is not a very profitable business there. You need to really give it to AirBnB kind of renting and have high occupancy rates if you need to make it profitable.
I think rents have peaked for now. Interest rates have also probably peaked. But rents go up very fast, but they dont come down at the same speed. It is quite possible that rents will remain at this level for another decade or so. So it is more of a time wise correction than a price wise correction.
So to expats, I would say, you have already seen the worst. Now you just have to focus of increasing your income. Your costs are likely to remain capped. In my case, I am hoping for a good appraisal this year too. If I get another 5% hike over the 26% hike I recieved over the last 3 years, then I have more than nullified the effects of Covid and inflation.
