The Australian property market has been facing significant fluctuations in the recent years. According to major banks like Commonwealth Bank and Westpac, the real estate market is expected to grow by 5-6% in 2024. Various factors like steady cash rates, low housing supply, and increased immigration and migration, and tax reforms are making property investments more appealing to investors. A downside to this is that it reduces the availability of rental property and puts increasing pressure on the rental market, leading to skyrocketing rental costs and tenants struggling to make payments.
Despite all this, experts argue that real estate remains a viable investment option. In this article, we will discuss things to consider before investing in real estate in Australia.
Australia’s property market is expected to grow on a moderate level in terms of price in 2024, with forecasts predicting 3-6% growth. Major Banks like Westpac have revised their growth predictions to a rate of 6%, while NAB and ANZ have taken a more conservative approach, predicting a 3-5% growth rate. Although the predicted ranges are lower compared to previous years, they still suggest positive return rates in the short term, especially in regions where there is a steady demand and limited housing supply.
The interest rate hikes carried out by the Reserve Bank of Australia have created a mixed landscape for investors. The current rates of interest stand at around 4.35%, which makes the cost of borrowing high in comparison to the low interest rate environment of 2016-2021. However, experts have anticipated that the interest rates may be eased as inflation comes under control by late 2024. This could revitalise the housing market by reducing borrowing costs and maximizing rental income for old and new investors.
Australia’s rental market remains tight due to low vacancy rates and increasing demand, which has the potential to benefit investors. However, concerns related to affordability and changing family structures pose a challenge as these create pressure on tenants, with many opting to seek room-sharing options or other low-cost arrangements to manage expenses.
The new tax reforms are predicted to increase take-home pay for many Australians, potentially boosting household confidence and borrowing power. This can encourage owners, occupiers, and investors to enter the market and adopt property management techniques, driving demand for properties and pushing up prices in certain areas.
Investors have grown increasingly interested in the “living sectors” like build-to-rent (BTR), student housing and co-living spaces because of their flexibility in adjusting rents due to inflation. These provide alternative opportunities to investors seeking returns despite high borrowing costs. Another sector that shows promising potential is the industrial and prime rental sectors, this is due to the high demands and limited housing supply in some regions of Australia.
While property remains a profitable investment in Australia, investors should carefully analyse their financial capabilities and focus on sectors aligning with the current market trends. The anticipated rate cuts in late 2024 and favourable tax reforms may be an ideal investment time if rates do begin to ease. Although property investments are not as straightforward as they were in the past, they can become a sound investment with the right property management strategies and approach.
