Real Estate News

Here's The Real Estate Forecast For The Next Five Years In Australia

Published 6th April 2022Updated 6th April 2023

view of Sydney Harbour

For Australia's property market, 2021 was a record-breaking year. House prices rose by an unprecedented 22.2% year-on-year - that's the highest price increase since 1989, according to CoreLogic.

Many experts believe the property market's peak is now behind us, and Australian prices might begin to soften in the lead up to 2023. However, there isn't likely to be a significant downturn, just a slower pace of price growth. 

It’s no surprise that investors are curious about what lies ahead for Australia’s property market in 2022 and beyond. With that, here’s our real estate forecast for the next five years in Australia.

Property prices will continue to rise but at a slower rate

Over the past year, property prices nationwide have skyrocketed by over 20%. However, we’re starting to see the market shift as conditions ease and the pace of growth slows. 

Take these stats from CoreLogic: in the three months to February 2022, national house prices only rose 2.7% (rising by just 1.8% across our capital cities). In February alone, national price growth was down to just 0.3%, with Sydney reporting its first drop in house prices in February (down by a marginal -0.1%).

So, what’s driving this slow-down in the pace of price growth? The combination of tighter lending conditions, increasing unaffordability and a rise in housing supply are all taking some of the competitiveness out of the property market.

We also know that many buyers are concerned about the threat of rising interest rates, with Australia’s four big banks said to be lifting rates as early as June 2022.

Will the property market crash in Australia?

As we look ahead, an increase in interest rates is predicted to be one of the biggest property market trends to watch for. In the short term, experts from SQM Research are expecting rising rates to cause a small dip in house prices in the second half of 2022 in Sydney and Melbourne.

Some industry experts are predicting a drop in house prices by as much as 14% in 2023 and 2024, depending on how quickly rates rise. But, that would still leave property prices well above pre-pandemic levels.

Ultimately, this does offer good opportunities for investors who are looking to get into the market, expand their portfolio or follow a positive cash flow (also known as a positive gearing strategy).

Regional property prices will continue to hold value

The rise of sea changers and tree changers off the back of the pandemic has sparked what many are calling a “lifestyle movement” in Australian property. We’re seeing high rates of domestic relocation as renters and buyers seek to escape the cities and set up homes in desirable regional spots. 

We know that regional property price growth has outpaced the national average, rising by an impressive 26.1% in the past 12 months (according to Domain). Plus, net migration to regional postcodes in the December 2021 quarter has more than doubled the levels seen over the past two years prior to the pandemic. 

Looking forward, regional and outer-city suburbs like the Sunshine Coast, Greater Geelong and Wollongong are tipped to hold value as many CBD workers shift to permanent work-from-home arrangements. The long-term shift in regional property values in Australia will remain a key part of the real estate forecast for the next five years.

Brisbane and Hobart will be the capital cities to watch

With more established capital city markets (such as Sydney and Melbourne) becoming increasingly unaffordable, buyers are heading elsewhere to get their foot in the property door. Specifically, experts are predicting Brisbane and Hobart will be two of the strongest capital cities as we look forward to the real estate forecast for the next five years in Australia. 

Rising demand in these capital cities is great news for investors, with Brisbane already seeing rents for houses and units skyrocket to their highest levels in seven years. 

Ahead of Brisbane hosting the 2023 Olympics, demand for properties across the city is expected to soar (off the back of increased infrastructure investment and limited real estate stock). For investors, it’s worth considering affordable pockets like Ipswich and Logan where you can still score an affordable rental apartment with good prospects of rental yields. 

As for Hobart, it’s worth looking into suburbs like Old Beach on the Derwent River that can offer affordable properties with easy access to the Hobart CBD.

Rental supply will be in sharp focus

With the regional property boom in full swing and international arrivals returning to capital cities, low vacancy rates will be a key focus in the real estate forecast for the next five years in Australia. 

Regional areas are seeing incredibly low vacancy rates (due to limited stock and strong tenant and buyer demand). Plus, the latest vacancy rates data from Domain shows that vacancies have further declined in all capital cities too, with Sydney’s vacancy rate now at a record low of 1.4% (the lowest point since Domain records began). 

It will take time for supply to catch up with demand, which means investors are likely to benefit from the ‘landlord’s market’ conditions we’re currently seeing for the years to come. 

Higher-than-average rents and consistent positive cash flow for investors are on the real estate forecast for the next five years in Australia. 

Borrowing regulations are likely to tighten 

With interest rates still at record lows (for the time being), many buyers are able to secure approval for large home loans, even with a low deposit. This growing debt to income ratio could spark changes in lending regulations.

However, the Australian Prudential Regulation Authority (APRA) has already intervened in October 2021 to tighten the lending rules to prevent borrowers from taking on too much debt. This may well be a key feature of the real estate forecast in Australia in the years to come.

While experts don’t expect APRA to intervene again in the short term, it is possible that this regulator could step in to make it more difficult for first-home buyers and even first-time investors to secure approval for a home loan. 

For established investors or anyone with a property already in their name, the ability to use equity to fund their next property purchase should shield them from these changes. So, established investors may actually be spared any impacts from this potential lending change. 

International migration and students will return

Last but not least is the final big-ticket item: the return of overseas arrivals.

During the pandemic, Australia’s closed borders save a significant drop in the arrival of international students, tourists and overseas visitors. Since borders reopened in late 2021, we’ve already seen increased demand for short-term rentals and a spike in student-visa holder arrivals. 

Looking ahead to the coming property market predictions, investors who have secured apartments or affordable rental properties in the inner city or close to Australia’s major universities will be well-placed to benefit from Australia’s open borders.

There are still plenty of opportunities for investors in Australia's real estate market over the next five years to continue earning stable returns and grow property values.

While price growth won’t be as rapid as we’ve seen during the pandemic, property values are still expected to grow over the next five years. Plus, with low supply levels and low vacancy rates, investors should be in a good position to score stable passive income from their rental properties.

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