With the US Federal Reserve raising interest rates to 1.5% in their December 2017 meeting, investors are watching keenly for knock on effects on the stock and property market.

But how exactly does rising interest rates affect property prices? How should an investor position him or herself so that they don’t get caught flat footed?

Many people assume that the only impact interest rates have on property prices are via the mortgage rate channel.

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In other words, higher interest rates (or fed funds rate), higher mortgage rates and therefore higher monthly payments.

This is true. But not the whole story.

Interest rates also affect property prices in other ways, such as capital flows, supply and demand for capital and investors’ required rate of returns.

The past few years of a low-interest rate environment has led to US investors …