Property prices in Australia’s largest capital cities will continue to grow over the next two years due to a shortage of housing and demand sharply outpacing supply, according to research commissioned by investment manager Capspace.
Capspace managing director Tim Keith noted the analysis conducted by Performance Property suggests several factors will drive expected price rises for houses and units in Sydney, Melbourne, and Brisbane, adding this would have a flow-on impact on most urban rental markets.
“Continued evidence of supply-chain issues and the cost of construction means the unit and housing markets continue to be in an undersupplied position, with overseas skilled migration likely to help push demand for housing higher,” Keith said.
“Strong rental growth is still evident across the country for housing across most capital cities, with the current national vacancy rate sitting below 2 per cent. As of March 2024, national dwelling approvals sit at 162,640 for houses and units.
“Performance Property’s analysis reveals that building approvals are simply not keeping up with population increases. We saw a direct increase over the last 12 months of 303,000 skilled migrants moving to Australia.
“This will put further pressure on rental markets nationally. Evidence of further increases to net interstate migration for Queensland and Western Australia are positive and that could make an argument for investors to get more exposure to these capital cities for further diversification.”
Additionally, he highlighted findings from the Australian Bureau of Statistics indicating nearly two-thirds of Australians’ total household wealth is invested in property.
Despite the appeal of real estate investments, he suggested exploring other assets that can provide both diversification and consistent returns to mitigate risk.
“The key driver of household wealth gains is rising property prices. With such a large proportion of individual wealth tied up in the property market, it makes sense for investors to diversify into other asset classes, particularly those from which they can draw an income, such as investments in private credit via non-bank loans to companies,” he noted.
“Ultimately, it is assets other than your home, particularly those from which you can draw income, that will support investors in everyday living and in retirement. So other investment strategies should consider diversification into fixed interest.
“Private credit can deliver investors yields close to 10 per cent per annum and investors understand their capital has protection based on the stringent loan process, lending and compliance policies, along with the security taken over borrower assets.”
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