Most of you probably read economic newspapers and are exposed to the news and global economic conduct. The networks are flooded with information about rising inflation and rising interest rates.
So how does all this relate to and affect the real estate markets?
We did a little “order in the mess” for you
Interest rate fluctuations and their effect on real estate investments abroad
While most of the world’s economies are recovering and returning to full activity in the era of curbing the Corona epidemic, inflation in many countries raised its head and following it came the increase of interest rates by the central banks as a tool to curb and moderate inflation.
The increase in inflation leads to an increase in prices and creates a problematic situation in the real estate market.
There is an excess of money in the market which results in a greater demand than supply. The banks “cool down” this situation by raising the interest rate which makes real estate financing more expensive and slows down the economy by creating other investment alternatives.
The increase in the interest rate brings with it a chain reaction and, of course, directly affects real estate investments. Over time, it may cause a reduction in demand for the purchase of properties. Following the reduced demand, the property owners (the sellers) lower the prices in order to attract more buyers. This is an example of the positive effect that the increase in interest rates has Can create a good timing for buying properties at an attractive price.
The current situation in the world shows that inflation actually works in favor of real estate investors abroad in some cases. For example, multi-family properties are considered a safer investment in an inflationary environment, and some even consider such properties “hedging for inflation”.
Such an investment is characterized by short-term leases, and if necessary, allows for the property’s rents to be increased as is customary in the market when the leases are renewed, thus providing almost complete protection against inflation.
Even in property types with longer lease agreements, there are often automatic rent increase mechanisms every year that constitute full inflationary protection for the rent.
In situations of uncertainty it is better to purchase in areas of high demand and find strong properties.
It is important to plan the investment strategy well, and to choose local partners with a lot of experience and together to carry out strict risk hedging.
By properly planning, real estate investments can not only cope with the increase in inflation and interest but may even protect against them.
How does this relate to us?
Following the extraordinary global economic situation in the world, we are currently examining real estate transactions in a different way than in the past while paying extra attention to high security and risk hedging appropriate for the period.
As one of the largest private investment funds in Israel, many opportunities and offers flow to us all the time. During the Corona times, SDB knew how to be “on the pulse” and offer its investors unique deals for the period. Even the current state of the real estate market dictated by inflation and rising interest rates can be leveraged and there are definitely unique opportunities for those who know how to finance a transaction correctly and with appropriate protection mechanisms.
Below are examples of a number of properties that know how to deal with inflation that we purchased in the last six months:
Multi-family properties are less affected by market volatility because they are backed by high demand from tenants and therefore precisely in a period when inflation is rising, these properties benefit from increases in rental prices due to the high demand.
New Castle Lake Miami, FL, US
A profitable project
Multi Family complex that includes 239 housing units
Holding the property, operating the property and raising the rent
Trenton, NJ, US
Improvement project
Purchase of 6 residential buildings of the Multi Family type
Contains a total of 188 housing units
Renovating, improving and increasing the rents of the units
East 101 Manhattan, NY, US
Improvement project
Purchase of a building built in 2009, with 8 floors and 34 housing units, an elevator and an attic
Internal renovation, improvement and rent increase
The property was bought at an opportunity price, below the market price
