Ray White’s director of property management, Ben White, has forecast that the nation’s renters will be forced to fork out an extra $2 billion in rent over the next 12 months as a result of rising interest rates.

Pocketing the increases will be the investors who own the properties, and you can rest assured that in some cases, the increases that landlords charge their tenants will be higher than the increase in interest they have to pay.

The Reserve Bank of Australia has increased the cash rate 5 times since October 2009. It is now sitting at 4.25 per cent. These increases mean that investors have to pay more for the finance they used for their investment properties. However, the ability to pass the increases on to tenants means that the owners are left in a more or less neutral position, with the tab picked up by the tenants.

Mr White said that most economists were predicting the cash rate to be increased to around 5.0 per cent by the end of this year, which would put further pressure on rents.

“This will have a major impact on the economy,” he said.

“There are around two million rental properties in Australia and if rents were increased by around seven per cent or $20 a week that amounts to $2 billion over a year.”

Mr White added that every force in the market place will be driving rents higher.

What does this mean for you as a potential investor? If the prospect of rising interest rates and higher ownership costs has been holding you back, isn’t it reassuring to see how the owners of the country’s two million properties manage this situation?

If you invest in a property in the right location, there will be strong demand for accommodation from tenants. Given this demand, and tight housing supply, it is relatively easy for landlords to pass on these rate rises in the form of increased rentals. It is certainly something that tenants will understand, and with rents of other premises rising at the same time, it makes little sense in renters trying to move home to avoid an increase.

Does this give you comfort as you consider whether to become a property investor?

As a further source of encouragement, professional property managers ensure that they are monitoring the market for you, and are proactive in recommending the timing and the size of an increase. This entails a rent review, which is the process that leads to tenants being advised of an increase.

According to Mr White, we will be seeing a lot more rent review valuations as the economy and the market gain in strength.

“Professional property managers will be under pressure to determine the best market rent rate. A property manager on top of their game will not only be working to get a property tenanted, but also help their landlords get the best rent for that property.”

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