Swaan, I doubt we are gonna see anything as bad as that Japan example you mention.
Many investors and buyers are likely to have done their research well and calculated their sums and had some common sense when and what they purchased and how much they paid. They are not likely to feel too worried and will hold for a 10 or 15 years or so and hopefully will get a nice profit at the end, and some rental cash flows over the time.
However, whenever there has been a speculative market with the growth we have had over the last few years, there will be a portion of the purchasers who have go caught up in the 'must be in it' frenzy. Some of these people might find themselves in trouble.
When interest rates rise, the effects are not confined to just the extra cash you have to find to pay your mortgage, the effect ripples through the economy, usually in a way to increase costs of everything else.
But what I see as the one to watch, is the demographic shift as baby boomers retire and many will make a shift in accomodation. Many will be depending on their family property to finance their retirement and if a large number of properties come on the market selling to raise cash and possibkly more to smaller places, prices in some market sectors are likely to drop.
I would think that the same applies to those you plan to fund their retirement from rental properties. I probably will be OK, but you need to have done your sums well and have bought good properties in good areas.
It is possible that government policy changes so that the family home is included in some way for the means test for pension payments and they did for investment properties in 1985 (as I recall).
Since we have not experienced a demographic shift like this and so noone really has the experience to judge what effects it will have.
Predictions and speculations for the effects are a bit like the y2k thing. Most speculations were wrong, and I would hope it is so with my speculations also.
