https://cabpropertywealth.com.au/
The Australian property market is showing clear signs of a new cyclical upswing, largely driven by expected interest rate cuts and a persistent housing undersupply.
- Property Cycle Turning Up: After a brief dip, national average property prices have been steadily rising since February 2025, indicating a new upswing. CoreLogic data suggests another 0.5% rise this month.
- Interest Rate Impact: The expectation of interest rate cuts by the RBA is a key driver. AMP is forecasting 0.25% RBA rate cuts in August, November (2025), February, and May (2026). Historically, rate-cutting cycles have been associated with higher home prices in the subsequent 12-18 months, provided there isn't a recession. Lower rates boost affordability and borrowing capacity.
- Chronic Undersupply: Australia continues to face a significant housing shortfall, estimated at 200,000 to 300,000 dwellings. Building completion times have surged (57% for houses, 65% for units over the last decade) due to regulations, costs, and labour shortages.
Affordability Remains a Challenge: Despite the upswing, Australian housing remains very expensive. Housing affordability has deteriorated since the 1990s, with home price-to-wage ratios rising and it taking an average earner around 10 years to save a 20% deposit.
- Rental Market Nuances: While rents are at record highs across all capital cities, the pace of growth is slowing considerably. Some cities saw their softest March quarter in years. Vacancy rates remain low (sub-2% in most capitals), favoring landlords, but there's a gradual improvement in rental supply and growing financial pressure on tenants. Darwin and Hobart, which previously had weaker conditions, are now seeing stronger rent growth.
Government Initiatives and Challenges: The government is expanding programs like "Help to Buy" and has banned foreign buyers from purchasing existing dwellings for two years from April 1, 2025, to improve affordability. However, reports indicate that Australia will fall significantly short of the 1.2 million new homes target by mid-2029 (potentially by 375,000 dwellings), mainly due to labor and material shortages, high costs, lack of land, and complex planning systems.
- Regional Variations: While national trends are generally positive, there are significant differences between cities. Perth, Adelaide, and Brisbane have been strong performers in price growth over the past year. Melbourne has struggled with new property taxes, but is expected to rebound.
What Investors Can Expect with Property
Investors can anticipate continued price growth, albeit at a more moderate pace than previous booms, with units potentially outperforming houses in some areas.
- Continued Price Growth: Property prices across capital cities are generally forecast to continue rising over the next year. Domain predicts combined capital city house prices to rise 6% and units by 5% over FY26. KPMG forecasts house prices to grow by 3.3% in 2025 and 6% in 2026, with unit prices rising by 4.6% in 2025 and 5.5% in 2026.
- Interest Rate Driven Demand: Lower interest rates are expected to increase affordability and borrowing capacity, motivating buyers and potentially triggering a wave of demand, especially in the second half of 2025 once rate cuts become more concrete. For investors, lower rates improve cash flow, potentially shifting properties from negative to positive gearing.
- Supply Shortages to Persist: The chronic undersupply of housing will continue to underpin price growth. Despite government targets, the actual build rate is falling short, ensuring ongoing demand pressure.
- Focus on Units in Affordability-Challenged Cities: As detached housing prices become increasingly stretched, units in inner and middle-ring suburbs of major cities are expected to see rising demand, offering a more affordable entry point. KPMG forecasts stronger unit price growth in some cities in 2025 and 2026.
- Regional Hotspots: Smaller and more affordable cities, and outer-metro areas, are likely to continue seeing strong demand and price growth as buyers seek better value.
- Rental Yields: While property prices are expected to rise, rent growth has started to slow. This could lead to lower rental yields if property prices rise faster than rental rates. However, tight vacancy rates in most cities still give landlords pricing power.
- Strategic Investing: Successful property investing will require strategic planning. Investors should focus on properties in high-demand locations that offer decent rental yields, and be mindful of potential overpaying. The "Bank of Mum and Dad" continues to be a significant factor enabling homeownership for many, highlighting ongoing affordability issues for those without such support
- Potential for Regulatory Intervention: If market growth becomes too rapid, there's a risk of regulatory intervention (e.g., tightening lending standards) to cool the market, as seen in previous cycles.
In summary, the Australian property market in late 2025 is characterized by an emerging upswing, primarily fueled by anticipated interest rate cuts and a persistent supply-demand imbalance. While affordability remains a significant challenge, investors can expect continued growth, particularly in well-located units and select regional markets
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