information Tey Yong Qing - Prices & High-Interest Rates Impact Real Estate Investments?

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During the period of economic expansion, when there are rises in interest rates, various asset classes react uniquely to this. Price and high-interest rates diminishing the principal of bonds, affect the value of stock and other financial assets. It also influences interest payment on the debt.

Tey Yong Qing says When it comes to real estate the use of MLM ( multi-level marketing) concepts has been considered by real estate agencies. MLM involves selling products to family and friends and training other people to do so. It can also be used to know the significant difference between the commission earned by estate agents, negotiators, and their agencies.

Real estate agencies earn their income from commission, so as an agent who needs to earn more commission you need to put in more hard work. Even though MLM has not been legalized or acted in Malaysia that Thallows agents to operate on such a basis

Real estate price didn't just go high out of the blur, some factors contribute to the high-interest rate like,​
  • Infrastructure development​
  • Economics situation​
  • Changes in policy​
  • Availabilities of amenities​
  • Local development​
Even though real estate investments have the characteristic of performing well in a rising rate environment, there is still some impact. High interest can either impact real estate in negative or positive ways.
Here are some impacts of price and high-interest rate by Tey Yong Qing

Increase in cost of construction

An increase in construction costs due to inflation often has an impact on real estate investment. The rise in wages, land cost, machinery, and building materials increases the cost of building
a home. The cost of employing engineers and other workers needed while building and designing estate also inflates. This makes developers and real estate investors increase the amount they sell to buyers.

High-interest rates increase the interest rate on loans incurred by real estate investors and developers. These disrupt their cash flow, leading to low share price growth

Are you planning to build or invest in real estate in an inflation environment? Increase your overall cost because building materials have increased by 13%. This year, building materials such as ready-mix concrete, lumber, gypsum board have also increased.

Income-generating asses

Investors tend to search for assets that generate above and beyond the inflation rate. This increases the price of purchasing real estate.
The rent collected from the tenant is also used to pay for the house mortgage, operating expenses, property taxes, and worker's salary. Whatever is left is invested back in the estate development, a process known as the capitalization (cap) rate. The capitalization rate is calculated by dividing net operating income(NOI) by the market value of the asset.

Increase in rent

Reports from students, families, and entrepreneurs, the increase in real estate causes an increase in house rent. According to research, from 1973 to 1983, there was a high period of inflation. This also leads to a similar increase in rent price that year.

Additionally, the cost of renting a house has also increased due to an increase in building materials, wages, and development.

Real estate needs to make profits from their investment and the high cost of all developer materials. To achieve this, they increase the rent.

Real estate limitation

Limited amount of property compared to fiat currency during inflation is another reason real estate prices rise. Real estate prices also rise as the money supply increases due to an increase in amounts of money printing.

For instance, using a simple example, assume that a certain economy has $1 million of the total money and that there are 100 houses without other goods or services. Each house would be worth $10,000, assuming that each property was identical.

Due to the high cost of material, the amount that was supposed to build twenty houses will be used to build just 7 seven houses. Which reduces the number of real estate buildings.

Higher mortgage rate

A mortgage rate is the interest rate paid to a lender in exchange for lending money to purchase a property. The mortgage rate can be a specific interest rate or fluctuates based on the agreement between the lender and the buyer.

As inflation increases, so do interest rates. The central banks also raise short-term rates to put downward pressure on the inflationary environment as inflation goes up.

If interest rates are low, more consumers tend to borrow, providing them more money to spend. This moves real estate prices higher. An inflationary environment usually sees higher mortgage rates. Rising mortgage rates impact the mechanics of the entire real estate market

Eliminate historical debt

Whenever inflation hits, the relative cost of debt always goes down, the debt becomes cheaper as the price increases.

For instance, if a house was bought 7 years ago for $170,000 with a down payment of $70,000. The mortgage is $100,000 for 25 years at a 3% fixed rate. In case the inflation increase 3% every year, every year the payment is still $475, but the value of the money has gone up 3% every year

The bottom line

Overall, the above point is the impact a high-interest rate can have on real estate investment. Those points are given by Tey Yong Qing with a decade of property management and leasing.

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