FY27 property outlook: Opportunity ripe despite growing headwinds

McGrath CEO, John McGrath, has projected that resilient demand and strong-performing regions will create opportunities for buyers and sellers in FY27, despite the recent market shift.

He said conditions remained subdued following the recent slowdown due to the conflict in the Middle East, stubbornly high inflation, and, most recently, the federal government’s tax changes.

However, he noted that high-performing locations continued to achieve strong results, ultimately causing a two-speed, or even three-speed, market.

“Looking ahead, we will see short-term volatility, followed by longer-term stabilisation and recovery,” he said.

According to Cotality’s latest Home Value Index, Brisbane, Adelaide, and Perth’s strong performances have endured, despite national figures flatlining.

McGrath noted Brisbane and Perth’s median values were now just above $1 million, while Adelaide was set to join soon, currently having a $950,703 median dwelling price following a 12.3 per cent yearly upturn.

On the other end of the market, McGrath said Sydney was leading the recent downturn, with annual medians only growing 2.3 per cent to reach $1.282 million.

In Melbourne, values were only 3.3 per cent higher than those recorded in May 2021, but McGrath said strong property supply safeguarded its spot on the capital city property ladder.

Meanwhile, Darwin has also been pushing ahead, becoming second only to Perth for its annual growth.

In Hobart and Canberra, values have increased by 9.3 per cent and 4.3 per cent, respectively, over the past year.

McGrath said regional markets had been resisting the affordability pressures of their capital counterparts, with every location beyond the cities and metropolitan suburbs seeing a peak period of high values.

When it came to interest rates, McGrath noted there was a chance there could be another rise in 2026 or 2027, following the Reserve Bank’s three hikes this year.

“The national cash rate now sits at 4.35 per cent, a figure we haven’t experienced since December 2024,” he said.

As FY27 gets underway, McGrath also said the federal government’s investor tax changes would continue to affect the market.

“It’s no secret that I’m very concerned about the Budget’s major reforms to capital gains tax and negative gearing for investors.”

“Following so many other negative spirals lately, including the Middle East conflict, these changes will definitely impact potential investors and renters.”

McGrath said there were likely to be fewer investors in the market, placing upward pressure on already high rents and struggling tenants, many of whom were potential first home buyers.

He said another possible outcome of the reforms was that owner-occupiers may place greater emphasis on housing as an investment.

“They’ll either choose to channel more capital into their next home purchase, or upgrade, as confidence in the market improves.”

McGrath said the market had already seen a material pullback, with anecdotal evidence suggesting sharper declines than official data currently reflects.

“I think we might also see a little bit more of a reduction in capital values in the second half of this calendar year.”

Additionally, McGrath said the rental market had grown significantly since the pandemic, with the latest national rent rise of 5.9 per cent being the highest since September 2024.

“Unfortunately, as house values drop, so too will gross rental yields, bar those in Melbourne, where yields of 3.87 per cent are at their highest level since August 2013.”

Ultimately, McGrath said, while recent changes and geopolitical aspects had changed the real estate outlook, there was still a high demand for property across the country.

“Regardless of global and domestic challenges, owning property remains one of the best ways to enjoy long-term financial prosperity and security.”