Is your property portfolio built to weather a global shock?
US-Israeli strikes on Iran are escalating and oil markets are already reacting. And while the conflict is 11,000 kilometres away, Australian economists and the Reserve Bank of Australia (RBA) are paying close attention, and so should property investors.
Why a war in the Middle East affects your mortgage
When conflict disrupts the Strait of Hormuz, the narrow waterway through which a significant share of the world’s oil passes, fuel prices rise. Since the first strikes on Iran in late February, brent crude oil has surged from around US$70 a barrel before the conflict began to above $100, as fears of a prolonged disruption to the Strait of Hormuz took hold.
When fuel prices rise, so does everything that moves by road or sea, including freight, food and other essentials. That’s a supply-side shock, and it pushes inflation up even when consumer demand hasn’t changed at all.
Rising inflation gives the RBA reason to keep interest rates higher for longer or even raise them further. And when rates stay elevated, your mortgage repayments do too.
Two scenarios economists are watching
Right now, markets are watching two possible scenarios.
If the conflict is short-lived, the impact may be temporary. It could be a short bump in oil prices and inflation before things settle again.
But if tensions drag on and disrupt energy markets for months, inflation could stay elevated for longer. That could delay rate cuts or cause rates to rise, keeping borrowing costs higher than many households were hoping.
The question every investor should be asking right now
For property investors, the key question isn’t what happens in the Middle East. It’s whether your portfolio can handle uncertainty if conditions become tougher.
How to stress-test your portfolio
A simple way to test this is to look at your numbers honestly. Can your portfolio handle interest rates staying where they are today, rather than falling soon? Running your calculations at current rates – not the cuts you hope for – gives you a much clearer picture.
Yield also matters. Properties with strong rental demand and healthy yields can help support holding costs when borrowing expenses rise.
It’s also worth looking at the fundamentals of the markets you’re investing in. Locations supported by population growth, employment opportunities and infrastructure investment tend to hold up better when sentiment softens.
Finally, buffers matter. Vacancies, repairs and rate movements are all part of property investing, so having breathing room in your finances can make a big difference.
Create a portfolio built to last
The portfolios that weather global shocks aren’t the ones that got lucky with timing. They’re the ones built on strong fundamentals from the start. While you can’t control what happens in the Middle East, you can focus on what you buy, where you buy and whether it holds up when conditions change. Get those fundamentals right, and everything else becomes manageable.