Market dynamics bolster what looks to be a property investor turnaround. Rhett Wyman
Despite the high interest rates, many property owners across Australia saw their equity holdings significantly bolstered last year, as large swaths of the nation’s property market saw strong value gains.
Now that rates have finally dropped for the first time in more than four years, the national property market is winding up for a new growth phase in 2026.
However, this ascendant phase will be separated by a year of slowed growth, according to KPMG’s Residential Property Market Outlook. Price growth is expected to slow from 5.1 per cent in 2024, to 3.3 per cent this year – before jumping to 6 per cent in 2026.
For established property owners this window presents a unique opportunity to put their equity to work and expand their property portfolio before a rush of less-capital-laden home buyers enter the market and push up competition and prices.
While not a game-changing enabler for first home buyers, for investors the modest drop in interest rates serves to signal market stability and clearer future direction in the near to medium term, helping to remove any destabilising fears of rapidly escalating interest rates, which tipped many over the edge in recent years.
This greater certainty is further buttressed by strong income and yields, with Australia’s rental market growing by 4.8 per cent in 2024 according to CoreLogic’s January data.
And at the long term macro level, the housing supply-demand equation continues to favour property owners, with the federal government’s goal to reach 1.2 million new homes by mid-2029 still seeming out of reach.
Meanwhile, the fast shifting geopolitical landscape amid the new US administration may make tangible, bricks-and-mortar local investments far more attractive for those previously considering deploying their capital in global market assets. Historically, periods following global crises – COVID-19 in 2020 and the GFC in 2008 – have coincided with significant capital inflows into the Australian property market, leading to strong growth.
All in all, these current market dynamics further bolster what looks to be a property investor turnaround after years of decline in Australia.
Demand from investors has been on the rise, with the Australian Bureau of Statistics reporting 212,500 new investor loans for last year to September, which represents an 18.8 per cent increase from the 12 months prior.
Many are now taking a long-term view and anticipating future capital growth to outweigh current costs.
Investors may have found that the cost of holding property has fallen significantly over time as their rental and other sources of income keep rising while the value of the debt falls in real terms.
The strong recent rental growth may even be sufficient to make the investment property cash flow neutral or even positive. A growing number of investors are in the position to think about using the improvement in their financial capacity to buy a second or third investment property.
Concurrently, after years of underperformance, the languishing unit sector – which has historically seen strong investor activity – could be set for a resurgence. KPMG predicts unit prices are set to outpace house prices over the next two years, with apartments and townhouse prices slated to gain by 4.6 per cent in 2025 and then 5.5 per cent in 2026.
This would provide many early-stage investors with accessible and manageable capital growth opportunities with less liability than a larger house mortgage. However, it’s important to make a strong distinction between finite, period-style apartments in inner-suburbs, as opposed to high rise, CBD new developments, which are in oversupply, and have poor capital growth potential.
For those seeking to increase their property portfolio, diversification has always been prudent. Traditionally, this meant different suburbs within the same city. However, interstate diversification is increasingly astute given the discordant national market in the year just past, which saw Perth (19.1 per cent), Adelaide (13.1 per cent) and Brisbane (11.2 per cent) skyrocket, Sydney (2.3) record moderate growth and Melbourne (-3 per cent) fall, according to CoreLogic.
For example, a property owner in Perth who has just enjoyed a massive boost in capital gains might leverage that equity to invest in Melbourne or Sydney, cities that have typically experienced less boom-and-bust volatility than resource-based markets. Conversely, a Melbourne investor, bogged down with increased taxes, may look towards higher growth opportunities in Western Australia.
While a growing property portfolio generally equates to greater wealth, remember that quality always trumps quantity. It’s the equity you build that truly matters, not the number of properties you own.
(Fin Review – March 2025) If you would like assistance with a home loan health check, purchasing property or refinancing, or to discuss any other lending needs, please do not hesitate to contact Geoff.
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