Real Estate- Yields low.

What happens to real-estate if oil-induced inflation causes governments worldwide to continue pushing up interest rates to curb? Growth for the past several years has been consumer-driven: increases in real-estate due to cheap-money have enabled households to withdraw equity from housing, thus increasing house-hold debt. What happens when the cheap money stops?

I suspect that as investors become dis-enchanted with residential yields, house sales will follow.
There was another similar article in the Press last weekend on the same subject, but in Chch.



Investors caught between rent and mortgage
20 March 2005
By TIM HUNTER

Rising interest rates and a defiantly strong housing market could create a double whammy for investors in rental property as stagnant rents struggle to meet rising costs.
Since Reserve Bank chief Alan Bollard increased the official cash rate by a quarter point to 6.75%, mortgage rates have followed suit. Floating rates now top 9%, and many fixed-rate loans are more than 8%.
Bollard has not ruled out further interest rate rises.
Real Estate Institute figures last week showed the national median house price reached a record in February, up from $265,000 in January to $269,200 last month.
In Auckland, the median house price rose 14.3% in the year to February, reaching $355,000.
But rents have not kept pace with soaring house prices. The REINZ figures show the median rental for a three-bedroom house in Auckland was $380 a week in February, 2.7% more than it was in February last year.
At those levels, Auckland rental property would produce a gross yield of 5.6%, down from 6.2% last year.

Rob Macdonald, director of property management firm Crockers, said the number of landlords with unreasonable rent income expectations had increased.
Crocker's figures show some rents are dropping, but other landlords, many facing rising mortgage costs, were unwilling to drop their rents.
However, in a market where tenants were generally spoilt for choice, other landlords were beginning to face the prospect of digging into their pockets to meet mortgage payments.
"Ask yourself, 'Is my property honestly in good enough shape to attract a decent tenant?'. And if the answer is no, then do not expect a bull run - do something about it."
Many property investors seemed insensitive to yield, Macdonald said, "which is amazing".
"People believe the capital growth will get them out the other end, and history has mostly proven them correct."
But for those facing an unbridgable gap between rent and rising costs, "consider selling in what is essentially still a good market".