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With rents continuing to rise, a new report projecting sale prices through 2025 forecasts tenants on the fence will pursue buying to beat the volatile rental market.
According to KPMG’s latest property report, house prices are expected to rise nationally by 4.9 per cent over the next nine months and then surge by 9.4 per cent in the year to June 2025.
Units, similarly, are projected to see an average rise of 3.1 per cent by next June, then a 6 per cent increase in the next 12 months.
The report outlines various forces impacting property prices, with factors putting pressure on either side of the scale. Ultimately, however, the research found that limited supply and high demand will greatly outweigh interest rates, with the latter serving almost to encourage buying, as increasing rental prices off the back of landlords’ attempts to recoup costs push renters who can buy into the market.
“Despite high interest rates, constrained supply will likely dominate the factors influencing property prices in the short term and result in continued price gains in most markets during FY24,” Dr Brendan Rynne, KPMG’s chief economist, said.
“House and unit prices will accelerate further in the next financial year as dwelling supply continues to be limited, due to scarcity of available land, falling levels of approvals and slower or more costly construction activity,” he added.
This lack of supply will combine with several other factors to keep activity in the buyers’ market high, according to Dr Rynne.
Current tenants are predicted to redouble their efforts to get out of the rental market, even weathering the short-term pain of extremely stretched finances to secure the relative stability of owning over the uncertainty of astronomical rental increases or eviction.
Per KMPG’s data, rental price growth is not expected to slow anytime soon, serving as a long-term incentive for buying.
“Based on our projections for new dwelling completions and the Treasury’s population forecasts, we estimate that annual rent growth will be 5.6 per cent over the next two years – which is 2.5 per cent higher than the long-term average of 3.1 per cent,” Dr Rynne said.
“We assess that dwelling completions would have to be around 76 per cent higher than is currently forecast for those rental costs to be pulled back to normal levels. Either that or population growth from migration would have to be brought down to considerably lower levels than at present – which would mean short-term costs overriding long-term economic benefits,” he explained.
Anticipated rate cuts moving into FY25 and potentially relaxed lending conditions will also serve to incentivise buyers, while migration is expected to contribute to demand in both buying and renting.
However, there are some factors pushing the other way to disincentivise buying, Dr Rynne noted.
“The main one being mortgage stress. First-time buyers now need to use around half their earnings on mortgage payments – a significant rise from a third just three years ago,” he explained.
Dr Rynne also pointed that across the country, local factors would impact individual markets.
Perth houses, for example, are expected to rise the highest through 2024 – by 8.4 per cent – but then Hobart is projected to take over, recording a 14.2 per cent increase into mid-2025.
Hobart units will also outperform all other capital cities with rises of 8.7 per cent and 10 per cent respectively over the next two years, followed by Sydney, Melbourne and Adelaide.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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