Australia Key Property Investment Cities’ Property Market Trends and Forecasts: 2023-2028 Edition

Investors are often curious about the outlook for the Australian property market for 2023 and beyond. Australia has a strong global economy and has remained resilient with 28 years of uninterrupted growth, resulting in relatively stable returns. Since the Russian invasion of Ukraine in early 2022, the Australian dollar has been performing well and hence, has been viewed as a safe haven currency by investors.

Recently, the Australian property market has been in a downturn due to rising interest rates, which will reduce borrowing capacity, and ongoing inflation, which reduces consumer confidence in the housing market.

However, this does not apply to all properties in Australia, as each city is at its own stage, with some falling, some rising, and some remaining stagnant. This report will expand on the outlook for the following cities: Sydney, Melbourne, Perth, Brisbane, and Adelaide.

Despite the rising interest rates, unemployment remains at a very low 3.5% in September 2022, the population growth is rising and Australian households have a relatively high saving for consumption.

Additionally, foreign investors are limited to new dwellings, which will attract new investment in housing development and increase Australia’s housing stock, creating more opportunities in construction and boosting the country’s economy. There is currently no credible reason to expect a property market crash in 2023 or beyond.

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The Core Cities’ Outlook

1. Sydney

Houses in Sydney reached record highs during the peak of the pandemic, but the market has since cooled due to higher interest rates. While dwelling values have declined, the rental yield in Sydney remains stable at around 3%. The affordability of apartments is expected to increase demand, particularly with the low levels of new supply. The return of migrants and students is also likely to keep the Sydney property market in strong demand and sustain impressive prices and high rents.

2. Melbourne

In Melbourne, housing values also increased significantly but has since cooled due to higher interest rates. Despite the drop in housing values, demand for housing has continued to decline, and the supply levels are 9% higher than the five-year average. While the increase in supply may provide some cushioning for the rental market, demand is expected to rise with the return of migrants and students, leading to a return to growth in housing prices.

3. Brisbane

Brisbane’s house prices have experienced steep growth, even as growth has slowed in other cities. The strong performance of the housing market in Brisbane is due in part to the city’s higher population growth compared to other cities, as well as internal migration to search for more affordable housing.

The rental demand market remains very strong, with high rental yields and strong rental growth prospects, due to a very low rental vacancy rate. This strength is expected to persist in the coming years due to the low housing supply, which will further intensify housing demand. This trend is supported by the state government’s recent decision to abandon controversial land tax changes.

4. Perth

Perth’s housing market is running at a different pace than other cities. Although prices are currently lower, demand has been solid over the years, particularly due to the city’s relatively more affordable housing compared to other cities and the current low supply. However, the supply of apartments is expected to increase significantly in the coming years. In addition, the rental market in Perth remains extremely tight, with strong rental pressures and high rental yields and growth prospects. The tight rental market is driving more demand towards the sales market, leading to even higher demand.

Perth’s housing market is running at a different pace than other cities. Although prices are currently lower, demand has been solid over the years, particularly due to the city’s relatively more affordable housing compared to other cities and the current low supply. However, the supply of apartments is expected to increase significantly in the coming years. In addition, the rental market in Perth remains extremely tight, with strong rental pressures and high rental yields and growth prospects. The tight rental market is driving more demand towards the sales market, leading to even higher demand.

5. Adelaide

Adelaide has proven to be the most resilient among all the other cities, with the strongest growth in housing prices. Despite this growth, housing remains affordable in Adelaide. There is increasing demand for apartments due to the shortage of detached housing and rapid growth in detached house prices, which has helped to increase the acceptance of apartment living. The low supply of housing will add more stress to the already tight rental market, which is expected to maintain strong rental growth and see increased demand with the acceptance of more foreign students and migrants to Adelaide.

Population Growth

Over the past few decades, Australia has consistently experienced strong population growth, averaging 360,000 people per year, and this trend is expected to continue in the coming years.

As international and internal borders reopen, both overseas immigration and internal migration are picking up, especially in inner-city areas and near student campuses, leading to a trend of around ~200,000 extra homes being needed.

This will have a positive impact on the property market and add additional pressure on the housing supply. This is likely to result in increases in rental rates and house prices across the country, as there will be greater competition for desirable properties, particularly those located closer to neighborhood amenities.

Economic Growth

Australia’s economy is relatively strong and has been growing stronger over the years. Despite the recent tightening of financial conditions and a slowdown in current economic growth, many households and businesses have built up relatively large savings during the pandemic, which will help to cushion any challenges that may arise.

Many borrowers are also ahead on their mortgage payments, reducing their affordability issues. Additionally, the unemployment rate remains low and wages are growing. This means that the chances of homeowners defaulting on their assets are low, and the economy is expected to continue improving.

This will lead to further boosts in new employment, wage growth, and spending across the country, which will increase demand for property and support property prices, especially in locations with limited supply. This is good news for investors, as it suggests there will be strong demand for property, which should support capital growth and rental yields.

Interest Rates

Interest rates have been relatively high in order to curb rising inflation, which has caused consumer confidence to drop as buyers are more cautious and prudent with their spending, as well as reducing their borrowing capacity.

With higher interest rates and low consumer confidence, many buyers and investors are choosing to wait it out, leading to a supply of property that exceeds demand. This has resulted in increased days on the market for properties, rising vendor discounting, and falling property prices.

For investors, this is good news because there is less competition, and it is a buyer’s market with an upper hand in negotiations. As homeowners hesitate, many are turning to renting due to the increasing population, especially those in need of their own space due to the new normal. This has led to increased rental demand and very low vacancy rates over the past year, which are expected to continue rising over the next few years.

Although the pandemic, temporary rising inflation and interest rates have caused property prices to fall temporarily, the outlook for the market remains positive.

Property prices are likely to rise when buyers anticipate that inflation has peaked and financial conditions relax. Increased buyer confidence will lead to higher demand for property, driving prices up. Demand will also be fueled by the return of immigration, falling unemployment rates, rising wages, and a growing economy.

From an investor’s perspective, the outlook for the Australian property market over the next five years looks positive, underpinned by strong population growth, an improving economic environment, and stable interest rates. This makes the Australian property market a good option for investors seeking long-term capital growth and attractive rental yields.

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