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The Implications of Rising Interest Rate

There is no doubting that property can be considered a sound investment option. Unlike other investments, however, the return is derived through the proceeds generated by the net rental income and capital gain achieved on disposal of the asset. Not surprisingly, interest rates have a profound impact on the income generated by investment properties. In an inflationary interest cycle, property owners are faced with reducing income streams or need to find ways of deriving more return on their capital investment, a challenging situation while rentals remain under pressure. Against the current economic landscape, we are finding raising interest rates, coupled with lower GDP growth. There is thus less demand for products in the market, making for a more competitive business environment and causing organisations to look for ways to generate strategic advantage – which generally translates into cost cutting. This obviously has negative consequences in terms of rentals where landlords will be forced to either accept lower rentals or hold out for higher rentals in order to achieve the desired returns – which could result in vacancy costs. The solution is that, from a new development perspective, input costs need to be leaner and profit expectations need to be adjusted. Additional avenues of cash generation need to be considered such as adding value where competitors are not willing or able to do so. As a group, Improvon have managed to do this very successfully, utilising our in-house construction competencies in order to control costs and add value through the development process.