Welcome to this week’s edition of the Property Edge newsletter, your go-to source for the latest insights, trends, and updates in the Australian property market. Whether you’re an experienced investor, a first-time buyer, or simply keeping an eye on the market, we’ve got you covered with expert analysis, surprising trends, and the key information you need to stay ahead. From unexpected hotspots for investment to the ongoing debate about the stability of the property market, this edition is packed with valuable information to help you navigate the current landscape.

Is It the Right Time to Build or Renovate?

Construction costs in Australia have stabilised somewhat since their peak in 2022, but experts caution that building or renovating remains a challenge. While costs continue to rise, the rate of growth has slowed, and the pressure is now more related to labour shortages than materials. The Housing Industry Association notes that fewer builders are in the market, leading to increased competition among those with the financial means to proceed with projects.

According to Ray White’s analysis, construction cost growth has dropped significantly, from a peak of 20.5% in 2022 to 4.3% in mid-2024. However, the lingering effects of the pandemic have made construction less affordable overall. Labour shortages are now a major concern, contributing to higher costs and project delays.

Builders are finding it challenging to complete contracts on time due to a lack of skilled tradespeople. Rising wages, driven by cost of living increases and major project demands, are adding to the strain. Yet, some argue that the primary driver of rising housing costs is not construction itself but the escalating price of land.

In summary, while the environment for building and renovating may be improving, significant challenges remain, particularly for those without substantial financial resources.

Annual increase in housing construction prices

Are High-End Properties Outperforming the Affordable Market?

In today’s challenging property market, characterised by high interest rates and steep median prices, a significant divide is emerging between affordable homes and pricier properties. While many buyers have adjusted their budgets to accommodate rising home loan rates, leading to increased demand for more affordable properties, the luxury segment remains robust.

Recent data reveals that demand for expensive properties is as strong as for more affordable options. This trend is evident in percentile sale price data, which highlights how different market segments are performing. Notably, properties in the 85th and 95th percentiles have seen price growth surpass the national median, despite the slowdown that began in 2022.

Meanwhile, lower percentile properties have also experienced consistent growth, driven by factors such as the rental crisis pushing renters into homeownership and investors seeking opportunities in more affordable segments. Over the past five years, demand for affordable homes has steadily increased, but the sustained growth in higher-priced properties suggests that the premium market remains largely unaffected by typical economic constraints.

Interestingly, while some cities like Adelaide have seen similar growth across both lower and higher tiers, others like Sydney show a stark contrast, with much higher growth in the top percentiles compared to the lower ones. The price disparity between the cheapest and most expensive properties is substantial, particularly in Sydney, where the gap can be as wide as $3.43 million for houses.

Despite reduced borrowing power for many, the upper end of the property market continues to thrive, bolstered by factors such as significant equity gains from the pandemic, fewer financial constraints among high-end buyers, and the influence of downsizers who own their homes outright.

Overall, while affordability challenges persist, strong demand across all segments keeps the property market dynamic and resilient.

Will the Australian Property Market Crash?

The Australian property market has seen a turbulent few years, marked by a boom during the COVID-19 pandemic, a subsequent dip, and then a rebound in 2023, which eventually plateaued. As of July 2024, the CoreLogic Home Value Index indicates a national annual growth of 7.6%. However, this figure hides significant regional differences, with Melbourne seeing just a 0.2% increase, Canberra 1.7%, and Perth an impressive 24.7%. Sydney’s index rose by 5.6% over the same period.

Domain economist Dr Nicola Powell highlights the current “multi-speed market” across Australia’s capital cities, where prices are rising at varying rates or even declining in some cases. For example, Sydney’s unit prices fell in the most recent quarter, the first decline in over 18 months, indicating that affordability concerns are beginning to weigh on the market.

The Impact of Interest Rates

The Reserve Bank of Australia’s decision to keep interest rates steady in August disappointed many hoping for relief from high mortgage repayments. Since May 2022, the cash rate has risen from 0.35% to 4.35% in November 2023, significantly impacting buyers’ purchasing power. While interest rates are expected to decrease by late 2024 or early 2025, they are unlikely to return to pre-pandemic lows.

According to Tim Lawless, director of research at CoreLogic, the prolonged period of low interest rates before and during the pandemic was a major factor in the property market’s growth. However, he believes it is unlikely we will see a similar period of consistently falling rates in the future.

Is a Market Crash Imminent?

Given these dynamics, the question arises: is the Australian property market headed for a crash or even a significant slump? Both Lawless and Powell agree that affordability is a critical issue. In response, the Federal Government has set a target of 1.2 million new homes over the next five years as part of its Housing Support Program, announced in July 2024.

Despite Sydney’s median house price reaching an extraordinary $1.66 million, the market has shown signs of cooling. Sellers are listing new properties, but the rate of sales has slowed, leading to a build-up of stock. This increase in available properties suggests a slowdown in market dynamics, with buyers having more choices, which could result in slower price growth or even declines in certain areas.

For instance, Melbourne’s CoreLogic Home Value Index dropped by 0.9% for the quarter ending in July, indicating downward pressure in a market that lacks the growth drivers seen elsewhere in the country. Lawless points out that the underlying factor supporting Australian property prices is the ongoing undersupply of housing.

How Much Could Prices Fall?

Powell believes it’s unlikely that the Australian property market will experience a significant crash, even with the government’s planned 1.2 million new homes. She describes the anticipated increase in supply as something Australia desperately needs, rather than a trigger for a major price pullback.

Lawless notes that historically, when the Australian property market slows, declines are typically no more than 15% from peak to trough, followed by a new growth cycle. While the market is currently undersupplied, it’s possible that in three or four years, we could face an oversupply, which would likely exert downward pressure on prices. However, he cautions against expecting a crash, suggesting that a 10% to 15% drop could actually be beneficial in restoring housing affordability.

Hidden Gem Suburbs for Property Investment Revealed

New data highlights a surge in investor activity across Australia, with Perth emerging as a hotbed for property investment. Seven out of the top 10 suburbs attracting investors are located in Perth, according to research by SuburbTrends. The study, which analysed new rental listings and their recent sale histories, identifies Armadale, Yokine, and Maylands as key areas drawing significant interest from investors.

SuburbTrends founder Kent Lardner notes that suburbs like Gosnells, Kwinana, Armadale, and Rockingham have become standout choices for property investors. Perth is currently regarded as one of the safest places to invest, offering promising returns.

Surprisingly, Melbourne has also seen a notable uptick in investor activity. The Gold Coast region ranks fourth, while Central Queensland comes in ninth on the list of areas with the highest investor interest. In these regions, the focus is primarily on houses, especially in areas like Coomera and Gladstone, which are attracting investors with their appealing prices, strong yields, and potential for capital growth.

Sydney also presented some unexpected results, with a higher-than-anticipated number of houses being purchased by investors. The Inner South West, including suburbs like Narwee and Beverly Hills, showed strong activity. In the South West, areas such as Moorebank, Georges Hall, and Bass Hill have seen numerous investor purchases, with a mix of both houses and units being targeted closer to Parramatta.

The Central Coast and Newcastle regions are also popular among investors, particularly in suburbs like Umina Beach, Gorokan, and Lake Macquarie.

Interestingly, Adelaide, which has been a strong performer in recent years, was less dominant in the data. Adelaide North ranked eighth, while Adelaide South came in at 25th, indicating a shift in investor focus away from these areas.

The analysis was based on a sample of over 74,000 rental listings from July 2024. Properties sold in the last six months that reappeared as rentals were classified as new investment.

That wraps up this week’s edition of the Property Edge newsletter. We hope you found our insights and analysis both informative and actionable as you continue your property journey.

Remember, in the ever-changing world of real estate, staying informed is your best strategy. Until next time, stay sharp and keep pushing the edge in your property endeavours!

P.S. Big News! We have recently launched a new groundbreaking technology that will revolutionise property deal making for property entrepreneurs and investors in Australia.

This platform not only features killer tools and data, but it also has AI powered research technology to automate end to end deal process, along with “just in time” training and support. This is further complimented with the knowledge, support and systems and like-minded community all available in a custom designed mobile app.

Its free to join. Simple CLICK HERE and select Join.