a question for the 'old-timers'

From: Nigel W

Greetings All,

This is a question for those who were in the IP game during the heady days of 17% interest rates...

As I was just a mere lad in short pants at that time I'd like to hear from those who experienced that part of the cycle.

What happened to rents as the interest rates climbed to those stratospheric levels?

My guess is that there is a direct correlation between rental increases and interest rate rises.

My reasoning is that higher interest rates would:

a) force some people to sell up/distressed sales, pushing them onto the rental market ie an increase in DEMAND

b) dissuade the majority of investors from buying and thus causing a reduction in SUPPLY

(of course the smart/cashed up investors were probably picking over the distressed sale bargains...but I suspect there would not be enough of those to significantly impact the above)

I look forward to hearing from those with some more IP years under their belt.

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Reply: 1
From: Owen .

I was renting in Elizabeth Bay in those days and rents made a dramatic jump. I was paying about $90-$100pw for various 1 br apartments in the area and then I went to Europe for a year travelling. When I can back in late '88 I was paying $160pw for the same places. I knew the area very well and it was huge change. The prices kept growing from there until I bought after the crash in '90.

Education and hindsight has taught me why this all happened. I can't wait for a rate rise!!!

PS - I'm not that old.
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Reply: 2
From: Michael Croft

Hi Nigel,

You are right there was an increase in rents but with a time lag. The banks put rates up quickly but you often had tenants on new 12 month leases with many months to run and no rent review in sight.

One thing about those days was that you were very lucky to borrow over 90% under any circumstances and that was with progressive credit unions, banks weren't as generous. Things changed as deregulation came in. Also as the bubble burst and commercial high rise crashed (Bond, Skase et al) all property lending was viewed with suspicion. It was not easy to borrow no matter your experience or equity.

Things will be VERY different this time around/cycle, and with The Economist predicting the worst recession since 1930, I don't think we will see 70s/80s style rate rises and inflation for a while.

Michael Croft
"The best parachute folders are those who jump themselves."
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Reply: 2.1
From: Greg Coglan

I have heard that rents increase with interest and inflation. I don't know the mechanics behind this but speaking to other people outside this posting this is the general philosophy.

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