Property prices tipped to hit record levels in two-speed market

The Australian Taxation Office this week revealed the country’s top 10 occupations by income and aspiring home owners might want to consider one of those careers if they want to keep up with the property market.

Real estate technology specialists Domain on Thursday (20 June) released property price forecasts for the coming 12 months, with 7 (and possibly 8) of the 11 regions nationally expected to hit record price levels.

The price boom is expected to pan out for house prices in the capital cities and regions, while units will hit record prices in the capitals.

For units and houses alike, only Canberra, Melbourne and regional Victoria are expected to deliver anaemic growth rates or even, in the case of the latter’s house prices, go backwards.

The predictions will come as sobering news to prospective home buyers, at a time when even existing home owners are struggling to keep up with mortgage payments. CoreLogic on Thursday revealed that home loan arrears reached 1.6 per cent in the March quarter, the highest such reading on mortgage arrears since Q1 2021.

On the house price front, Perth, Adelaide, Sydney, and Brisbane are expected to lead price gains, reaching new records. Sunshine Coast, Gold Coast, and regional Australian house prices are also anticipated to be at record highs.

By the end of financial year 2025 (FY25), house prices will surpass $1.7 million in Sydney, $800,000 in Perth, with both Brisbane and Adelaide likely joining the million-dollar club.

Sydney, Brisbane, and Adelaide are expected to lead price gains in the unit market.

Unit prices across Sydney, Brisbane, Adelaide, Perth, Gold Coast, Sunshine Coast, and regional areas will reach record highs if the forecasts are accurate.

While unit price growth is anticipated to slightly accelerate in Melbourne and Canberra, Sydney’s forecasted growth remains similar to the 2023 calendar year and FY24. Melbourne and Canberra are the only cities where unit price growth is expected to surpass that of houses.

Dr Nicola Powell, Domain’s Chief of Research and Economics, said Australia urgently needed more supply to balance the market and make it more affordable for Australians to own a home.

“While the continued increase in property values is good news for Australians that own a home, we have to acknowledge that it’s becoming increasingly harder for many Australians trying to get into the property market.”

She said the forecasts for continued growth, albeit slower than the pace of price gains over the past year or two, were driven by an array of demand drivers and government policies.

“We predict that population growth, construction challenges, and borrowing power will be the key drivers behind the price growth.

“Demand has risen as housing composition changes, and demographic shifts and robust population growth unfold.

“We have seen an increase in single-person households and a decrease in household size in general (fewer people, on average, living in each household), both amplifying housing demand, further compounded by migration.

“Home building has also struggled to keep up with population growth due to the scarcity of land, weak building approvals, and high construction costs, exacerbating the existing structural undersupply, which will lead to an ongoing limited supply of new homes on the market.”

Dr Powell added that additionally, as of 1 July, stage 3 tax cuts will mean more money hits Australian households, lifting borrowing capacity and, therefore, buying power across the country.

Property market not without its restraints

While expectations are that property prices will continue to rise like bubbles in bathtub, there are those who see the waters ahead as being more tepid than hot.

Property listings are on the rise, with that added volume of properties for sale helping to ease price pressure.

The direct correlation between listings and price growth is clear. The more modestly performing property markets have seen listings rise sharply.

According to PropTrack, the ACT (+32.4 per cent), Melbourne (+24.7 per cent) and Sydney (+17.7 per cent) have seen the largest increase in total listings over the past year among capital cities, while in the boom markets of Perth (-23.4 per cent), Adelaide (-8.7 per cent) and Brisbane (-3.4 per cent) falls have been recorded.

Robert Baharian, Partner and Chief Market Strategist, Ekam Capital, said the property market remains vulnerable to higher interest rates and rising unemployment in the second half of 2024.

“We’re already seeing slowing growth in house prices in capital cities, primarily in Sydney and in Melbourne, as high levels of debt and the cost of living weigh on households,” Mr Baharian said.

“We believe property prices in Brisbane and Perth will continue to hold at relatively high levels given the relative value in those cities, with a growing pool and share of the investor market looking outside of Melbourne to buy property,” he said.

“As expected, the RBA kept rates on hold and we do not expect any rate hikes soon, as the central bank has held rates too long for that.

“The longer the Reserve Bank holds, the more the consumer will feel the impact and eventually we’ll see inflation come back down to the 2 to 3 per cent target as we are seeing in the US.

“We think rates might remain on hold at least to September, and possibly right through to April 2025 before the consumer sees any relief - we may have won the battle, but the war on inflation is not quite in the bag yet.”

Two-speed property market emerging

As listings and recent price data highlight, a growing divide is emerging between Melbourne, Sydney and the smaller cities of Canberra, Darwin and Hobart, and fast growing Adelaide, Perth and Brisbane.

Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, said a two-speed property market was rapidly asserting itself.

She said prices in Adelaide, Perth and Brisbane would continue to deliver stronger growth than other cities but also had a word of caution for investors venturing into those markets without doing their homework.

“It’s not just a case of stick a pin in the map and buy any property type in any suburb,” Ms Kelley said.

“Buyers in Perth and Brisbane should be wary of investing in areas where there is too much of the same stock.

“Too many apartments are being aimed at investors rather than home owners in it for the long term, and oversupply is reducing price competition for these dwellings.”

Ms Kelley identified some of the most susceptible areas for these issues as South Bank, Kangaroo Point and South Brisbane and, in Perth, inner areas such as the CBD, Burswood and East Perth.

Another, often overlooked, factor investors had to consider in the unit market was the often alarming rise of strata costs.

“We are seeing some crazy body corporate fees being applied, so buyers need to go over their contracts with a fine toothcomb, and check their strata disclosures and the 7-10 year maintenance plans, otherwise they could see their investment cash flow badly impacted,” Ms Kelley said.

Top 10 wealthiest suburbs revealed

The past and forecast price rises are unlikely to trouble those living in the highest earning suburbs in the country.

The ATO this week listed the top 10 occupations by income and post codes in which they live.

Surgeons topped the list that was half filled with medical practitioners, while financial, legal, engineering and management positions dominated the latter half of the list.

Of the suburbs that were home to the highest paying earners, seven of the top 10 postcodes in the country were in NSW, with Sydney harbourside suburb Double Bay taking out top spot.

The average taxable income of residents living in this postcode (2028) during the 2021–22 financial year was $354,308.

WA and Victoria were the only other states to appear on the list, with the Perth suburbs of Cottesloe and Peppermint Grove included and Victoria’s Portsea and Toorak being that state’s top-earning suburbs.