Amid rising rates, tight borrowing limits a blessing for Reits, homebuyers
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WHEN cost of debt is low, loading up on debt to buy a property is compelling.
For a property with an annual entry yield of 3 per cent, the yield on equity rises to 3.4 per cent and 4.5 per cent based on funding the purchase 30 per cent and 60 per cent by debt respectively, assuming cost of debt of 2 per cent per annum.
If the cost of debt is 3.5 per cent per annum, the yield on equity in the above example falls to 2.8 per cent and 2.3 per cent respectively.
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