Australian Property Market Update & Everything you should know

4 Aug, 2022

Australian Property Market Update & Everything you should know

The effect of inflation and rising interest rates on the property market has been a hot topic recently. 

Rent requests are at an all-time high, demand for housing is on the up, and government grants are flowing.

On top of that, from January 2023, first-home buyers in New South Wales can get into the market sooner by paying a property tax instead of an up-front stamp duty fee (for residences valued up to $1.5 million). 

Whilst the one drawback is rising interest rates, the Reserve Bank’s current cash rate of 1.85% is historically low.

So, it raises the question…

Is now a good time to buy and invest?

To answer this question, let’s look at the property market today;

1. Interest rates and the property market 

At the Reserve Bank of Australia’s August meeting on 02/08/2022, a decision was made to raise the cash rate by 50 basis points from 1.35% to 1.85%. 

Many think rising interest rates will hurt the property market; however, it’s quite the opposite. High inflation is usually the reason interest rates rise, and this is also the cause of increased property prices.

Let’s reflect on the property market historically, and what rising interest rates and inflation have meant. 

Going back to 1970, you needed only around $18,700 to purchase a property in Sydney. At that point, the interest rate was 5.88%.  

RBA Cash Rate vs Median Property Price

Source: RBA, CoreLogic

Just 10 years later, the property prices went through the roof to around $76,000, tripling the price of 1970. However, at the same time, interest rates went from 5.88% to 9.1%.

The same pattern remained throughout the property market’s history, where property prices increased regardless of the rising interest rates.

Savvy property buyers take advantage of this, as rising rates are always associated with rising asset values and property values.

2. Housing shortage – Low supply and high demand 

According to recent ABS data, since 2016, the number of free-standing dwellings approved in NSW has steadily been around 30,000, with a decline in 2020.

While approvals for multi-unit housing (apartments and townhouses) entirely declined from three strong years of 42,000–44,000 approvals in 2016–2018 to less than 30,000 approvals in each of the last three years.

According to ANZ, there is already a housing shortage of 250,000 homes. 

In addition, CoreLogic’s Cordell Construction Cost Index (CCCI) for Q2 2022 revealed that national residential construction costs rose by 10.0% over the 12 months to June 2022. This is the greatest annual growth rate ever recorded outside of the implementation of the GST (10.2% over the year to March 2001).

New building activity is expected to slow further over the next three months, which will have a knock-on effect on the housing supply across Australia. 

3. Rental Property Market – Ideal for investors 

According to CoreLogic, Australia’s rental market continues to tighten as low supply levels caused national vacancy rates to dive, and rents to rise across all capital cities and property types over the past three months.

Here are some CoreLogic Q2 2022 Rental Review Key Trends:

  • National dwelling rental values rose 0.9% in June and rose 2.9% over the June quarter.
  • National dwelling vacancy rates fell to 1.2% from 2.2% this time last year.
  • Capital city rents increased 3.0% over the June quarter
  • All eight capital cities saw an increase in rental values over both the latest quarter and year-on-year
  • National unit rents recorded double-digit annual growth for the first time, rising 10.0% over the 12 months to June.

Increasing rental yield, dropping vacancy rate, and the supply and demand issues driven by the housing shortage will almost certainly put more pressure on rental prices, meaning now is the best time to start buying or investing in property. 

4. Population explosion and the coming immigration boom 

Another factor that will affect the property market is population growth, which will drive the market even further. 

With international and domestic borders reopening, we have welcomed international students, visitors and residents back into the country. And we are going to see an influx of immigrants over the next 3 years.

The Government has forecast over 230,000 skilled migrants will come to Australia every year. Therefore, the property and rental markets are expected to remain tight.  

According to Real Estate Institute of Australia President Hayden Groves, home buyers shouldn’t wait for prices to fall. 

“If anyone is waiting for a market where supply is outstripping demand, I don’t think that market is coming anytime soon, particularly when we are going to have more migration coming into Australia.

“We haven’t been building a lot of houses in recent times. We still have a shortage of supply.”

5. Buying off-the-plan

In a time of building insolvency, increasing material costs, and supply chain issues, buying off-the-plan is a great strategy that many buyers are heading toward.

Off-the-plan purchases offer a great opportunity to take advantage of asset prices increasing due to inflation by locking in today’s prices with a relatively small deposit.

In addition, buying off-the-plan provides more time for you to save for future repayments during the construction process. While your property has already been secured, the value would most likely increase by the settlement date.

6. Advice from our property experts 

Looking at the long-term cash rate over the last 10 years, you will see that the long-term average bank interest rates have been around 6-7% for many years. That’s about the “sweet spot” for the economy, cash savers, governments and borrowers, said Mark Harry, Senior Property Strategist at St Trinity Property Group.

“Governments drop cash rates when they want to stimulate the economy. On the flip side, governments increase cash rates when they want to slow the economy to control inflation and the overall cost of living.

Therefore, a rise in the current cash rate of 50 basis points to the current 1.85 per cent – and the corresponding bank interest rates of around, say 3-4% are still well below the sweet spot.

Rates will continue to correct depending on the economy. It’s just the economy balancing out to where it feels most comfortable.”

So, as a savvy property buyer and investor, it is important to understand the true meaning of the interest rate rise and respond wisely to it.

Let’s wrap up!

If you are looking to buy or invest in the property market, now is an opportune time.

Whether you are a first home buyer or investor, or you’re unsure how to move forward in your property journey, our team is here to create personalised wealth-building strategies that can help you secure the financial future of your dreams.

Talk to our team today by enquiring below or calling (02) 9099 3412.


Last updated: August 2020


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• Menai NSW 2234
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