05.03.2017 Tax & Finance

Rising Interest Rates: How It Could Affect Sydney’s Eastern Suburbs Property Market

Rising Interest Rates: How It Could Affect Sydney’s Eastern Suburbs Property Market

Low interest rates are one reason Sydney’s property market has been booming. So what would happen to the eastern suburbs property market if interest rates started to rise?

Low interest rates have been an important factor in Sydney’s recent property boom. Historically, low rates have meant that buyers can borrow more and service their loans more cheaply. This has naturally pushed the price of real estate higher. So logic says that when interest rates rise, prices should automatically stop growing or even fall, right?

Sydney’s eastern suburbs are a little more complex than that.

Here are some of the unexpected consequences of potential interest rate rises in Sydney’s eastern suburbs.

The top end of the market

Sydney’s eastern suburbs are home to many of Australia’s finest properties and most exclusive addresses. From harbourside suburbs such as Point Piper, through to the estates of Bellevue Hill and Centennial Park.

At the luxury end of the market, there simply isn’t the same correlation between interest rates and property prices as there is in other sectors of Australia’s real estate market. Instead, property prices are more closely linked to the share market, the global economy and exchange rates. That’s partly because buyers in this part of the market often don’t fund their purchases with a massive mortgage. It’s also because a higher proportion of luxury buyers intend to be overseas-based (often ex-pats) which means a lower Australian dollar gives them more to spend.


These days, downsizers are just as likely to be luxury buyers. But no matter which part of the market they’re buying in, one thing is true: downsizers tend to be less affected by interest rates than other buyers.

That’s because more often than not, downsizers are cash buyers so, on face value anyway, rising interest rates have little impact on their purchasing power.

Higher interest rates can affect downsizers though when they bite into the amount people have to spend on the home they’re selling. Less money in their pocket from a sale means less money to spend on the next property, so if you’re targeting downsizers this flow-on may affect the amount you can expect to sell for.


For people looking to upgrade – whether to a family home or another more expensive property – rising interest rates can have a significant impact. When interest rates are high, banks tend to be more conservative in the amount they will lend so that loans remain serviceable.

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But, in a flatter market, the gap between property prices also tends to narrow, meaning you will have less ‘gap’ to fill between two properties. That can make upsizing easier rather than more difficult.

When you’re looking to move into a more expensive property, there is often no better time to do it than when conditions slow.

Developments and new apartments

Again, rising interest rates will affect developers disproportionately, depending on whether they’re bringing their own capital to a development or whether they need to borrow. For that reason, when it comes to building, rising interest rates have less effect on larger developers with deeper pockets.

That said, once a development is complete, higher borrowing costs often means that buyers have less to spend. But this too can have its advantages.

For instance, it may make developers less inclined to develop in the first place and that, on its own, helps keep prices up by reducing the number of properties available.

Ultimately property prices are always based on the laws of supply and demand and less supply means higher prices.

The bigger picture

It’s always worth remembering that the very best protection against possible impacts of interest rate rises is to buy in an established area, close to amenities: one with limited property and unflagging high demand.

And Sydney’s eastern suburbs fit those criteria in every way.