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Property

House prices ‘face biggest hit in 40 years’

Australian housing prices could fall up to 15 per cent by the end of next year, predict Morgan Stanley analysts, after the prospect of higher interest rates prompted them to downgrade their forecast in May of the “largest correction in 40 years” for the residential market.

National home values had already fallen within the range of the investment bank’s economists’ forecast decline of 5 per cent to 10 per cent after the federal budget’s changes in May to taxation of property investments. That prediction had put them ahead of other forecasts at the time, said Morgan Stanley’s Australia economist Chris Read and his colleagues.

“While out of consensus at the time, the subsequent data has validated this view, with national prices down 5.2 per cent from their March peak, and the weakness broadening across regions, with turnover down sharply and unsold stock building,” the Morgan Stanley analysts said in a client note.

“But the backdrop has worsened, and we now expect a 10 to 15 per cent fall.”

That would still mark the largest decline in 40 years, they said.

Higher borrowing costs – the key to the worsened outlook – took a step closer to reality on Wednesday when Reserve Bank deputy governor Andrew Hauser flagged the chance of a fifth rate increase this year at the bank’s monetary policy board meeting on November 2-3, and said the inflation outlook was “materially worse” than the bank had last forecast in August.

Separate data from listings company Domain reinforced the gathering pace of the downturn, as house prices in the September quarter fell across every capital city for the first time in 15 years, and only the second time on record.

Sydney (down 4.7 per cent) and Melbourne (down 3.3 per cent) recorded their largest quarterly house price falls in four years, while Perth recorded the sharpest decline. House prices in the West Australian capital dropped a record 7.4 per cent, after ticking down just 0.7 per cent in March.

Brisbane houses fell 5.4 per cent, Adelaide and Hobart houses shed 3 per cent, and houses in Canberra and Darwin lost 2.6 per cent in the three months to September.

Prices of units fell in every capital city except Darwin, where they gained 2.2 per cent.

“This is likely to be the deepest downturn we’ve experienced,” Domain chief residential economist Nicola Powell said.

“When you look across the combined capitals, the biggest downturn trend was 8.5 per cent from peak to trough, and that was in the 2019 period. We’re already at 6.2 per cent.”

Even though factors such as high construction costs – which made existing homes cheaper than new ones – a tight rental market with low vacancy rates, and sellers who were keeping stock levels low would underpin housing pricing and prevent a crash, prices would weaken further as buyers, expecting further rate rises, waited it out, Powell said.

“We are in an environment where you could see another rate hike,” she said. “Buyers are expecting prices to fall further in the future. They wait and delay decisions to purchase, and they watch. People are waiting to get a better deal.”

Australia’s housing market – which the Australian Bureau of Statistics said shed $34.1 billion in value in the June quarter to be worth $12.7 trillion – would suffer a total decline of closer to 10 per cent by the time it bottomed out in late 2027 if rates stayed on hold from here, but the declines would run deeper if rates rose further, the Morgan Stanley economists said.

“Interest rates remain the key sensitivity of the depth of the downturn from here,” they said.

“Our forecast for the RBA to remain on hold near-term should see low double-digit declines in home prices, while further tightening in line with market pricing would push the decline closer to the higher end of our range.”

The housing market is already slowing. Slumping volumes were the main reason the combined capital city clearance rate picked up to a preliminary 51.2 per cent last week, up from 48.8 per cent a week earlier.

On Monday, Stockland, the country’s largest listed diversified developer, said new buyer inquiries – a leading indicator of sales – fell in the September quarter to their lowest level since at least September 2020.

The Morgan Stanley analysts said a trough was usually characterised by five factors, which would signal a coming improvement in the housing market, but none of these was visible yet, and hence a pick-up was unlikely before the end of 2027.

The factors include markets pricing in rate cuts, government policy easing, sales rising relative to listings, auction clearance rates picking up, and home ownership becoming cheaper relative to renting.

“All five troughs since 2008 came with at least three of these triggered,” they said.

“Today, none are triggered, and none has been for nine months. The RBA is constrained by inflation and relaxed about financial stability, policy is still tightening, and buying remains near-record expensive relative to renting. We do not expect these factors to turn before mid-2027, which is why we see a trough in the second half of 2027.”

House prices ‘face biggest hit in 40 years’2026-10-28T09:01:03+11:00

Surging rents add to supply concerns amid tax changes

Rents are accelerating at their fastest pace in 2½ years and are likely to rise further, amid concerns the federal budget will do little to boost housing supply in the short term and may even add to the cost of renting.

Weekly asking rents across the capital cities rose an average 6.9 per cent from a year ago, SQM Research figures on Wednesday showed, with the combined figure for houses and units in Sydney up 7.1 per cent year-on-year, up 6.3 per cent in Melbourne and 8.7 per cent in Brisbane.

The yearly rate of gain is likely to go as high as 10 per cent over the next year – putting it above the 9.2 per cent chalked up in November 2023 – as the underlying shortfall of rental houses is exacerbated by last week’s federal budget, leading to a reduction in rental housing supply, said SQM managing director Louis Christopher.

“I’m seeing no change with building numbers or suggestions there will be equilibrium between supply and demand any time soon,” he said.

“Going forward with the property tax changes, we can expect a decline in available rental stock over the course of the next two years. Rental yields will need to rise to encourage investors back into the market and that will happen through a combination of housing price falls and rises in rents.”

The budget announcement that negative gearing and the 50 per cent discount on nominal capital gains will no longer be available to investors for existing homes – although they both remain available for investment in new builds – has stoked debate about the extent to which the tax breaks subsidise rents.

Investor advocates have said negative gearing – which allows a landlord to offset losses from a rental property against other forms of income, such as wages – keeps rents lower than they would otherwise be.

“Rents are a persistent inflation … That 7 per cent you have today is embedded in 6 months’ time. There’s almost nothing you can do about it.”

— Jo Masters, Barrenjoey chief economist

“Anything that eases their investor cash flow enables them to hold a property,” said Cate Bakos, a buyers’ agent and chair of industry body Property Investment Professionals of Australia.

“It’s a crude way of putting it, but it certainly subsidises rent. It alleviates their holding costs.”

That was seen during the COVID-19 pandemic when lower interest rates made it easier for landlords to accept rental reductions or freezes, Bakos said.

“It was far easier to say ‘yes’ because holding costs were less,” she said.

Independent economist Saul Eslake said, however, that rents were set more by vacancy rates and what the market would bear, rather than costs faced by landlords.

“Rental is not a cost-plus business,” he said. “That is, landlords charge what the market will bear, which is driven largely by vacancy rates.”

Rents did not fall last year when the Reserve Bank of Australia was cutting interest rates and they had not risen this year as a result of borrowing costs rising again or because council rates rose for landlords, he said.

Rather, negative gearing had allowed landlords to borrow more to push up prices, Eslake said.

“By incentivising landlords to borrow more money to bid up, forcing up the price of housing we’ve already got, they’ve inflated the price of housing,” he said.

“If negative gearing didn’t exist property prices wouldn’t be as high as they are and rents as a percentage of the cost of property wouldn’t be higher, either. Landlords wouldn’t need to raise rents as much to make a return on their asset.”

Higher rents do raise risks for inflation. Christopher said the near 7 per cent capital city annual rate of increase for rents was the highest since the post-pandemic period.

Barrenjoey chief economist Jo Masters said rents made up the second-largest line item in the official CPI basket – after the cost of building a new home – and that the trend of rising rents was a risk.

The CPI rental figure represents the so-called stock of all rents – that is, all rental prices, whether they are renewed or not – so it will be lower than the current rise in asking rents.

But Barrenjoey’s forecast this calendar year is for 3.9 per cent CPI rent inflation, which Masters said was “quite strong”.

“Rents are a persistent inflation,” she said. “That 7 per cent you have today is embedded in 6 months’ time. There’s almost nothing you can do about it.”

Bakos said when investors were pressured financially they would push to get the highest rent they could.

“We’ve seen it with land tax; we’ve seen it with increased interest rates,” she said.

Christopher said the post-pandemic acceleration of rents, which have jumped from a yearly growth rate of 2.5 per cent in May last year to 6.9 per cent now, would put pressure on headline inflation.

“Is it a return back to the days of 2021 and 2022? Not yet, but it’s clear the re-acceleration will feed into the Australian Bureau of Statistics’ CPI soon,” he said.

Surging rents add to supply concerns amid tax changes2026-05-21T11:49:15+10:00

Dubai calling? Property investors may be tempted by UAE, New Zealand

Australians may be more willing to consider parking their money in more investor-friendly real estate markets such as the United Arab Emirates and New Zealand following Labor’s property tax shake-up, according to industry figures.

Neither the UAE nor New Zealand imposes the extent of taxes levied on property investments that Australia does, including through a capital gains tax on real estate or land tax, respectively, they said.

Among those with skin in the game is real estate agency Whitefox, which has operated across Australia since 2017. It opened its first office in New Zealand in 2023 and an agency in Dubai earlier this year.

“Australia’s proposed tax changes are becoming increasingly punitive for property investors,” Whitefox founder Marty Fox told The Australian Financial Review. “Already 30 per cent of our transactions in New Zealand are from Aussies and that will likely go up for Wanaka and Queenstown.”

Fox, who is himself in the process of applying for a loan to purchase property in Dubai, said the UAE city had emerged as one of the world’s most “tax-efficient property markets for globally mobile investors”.

It is one of the reasons why Australian property investors, like Fox, may be more willing consider turning their real estate lens onto foreign markets following Labor’s decision to abolish negative gearing and axe the 50 per cent discount on capital gains, unveiled in its May 12 budget.

The United Arab Emirates doesn’t impose income tax or capital gains tax on individuals. Residential rental yields in Dubai also average around 6 to 8 per cent, compared with Sydney, where typical rental yields sit at about 2 to 4 per cent.

Australian investors may qualify for a UAE Golden Visa – a renewable five-year or 10-year residence visa – if they purchase property worth a minimum of $AED2 million (about $766,000) upfront, using a loan from specific local banks, or off the plan through an approved local real estate firm, according to Henley & Partners.

Nahi Beaini, director of Sydney-based buyers agency Dubai Property Playground, said there had been a significant number of inquiries from Australians wanting to purchase Dubai property more recently, mainly from investors wishing to diversify their assets and also because of its investment into AI and data centres.

“Dubai has always been a destination to invest, even before the [latest Australian federal] budget, but the new compliances and rules around the budget just makes it more compelling to invest in a place such as the UAE,” he said.

“We’re definitely expecting, especially from people who are first-time investors, [for inquiry to accelerate] over the next few months. There’s a lot of people talking about it, but it’s still early stages.”

While the war in the Middle East has disrupted that investment in the past few months, Beaini said would-be investors were looking past that to planning investment decisions in the future.

In New Zealand, some of the benefits of owning property include no stamp duty or national land tax. Landlords can also claim 100 per cent of their mortgage interest as an expense.

However, under what’s called the bright-line rule, any profit made from selling a property within two years of its acquisition is subject to tax, except if it’s a person’s primary residence.

Fox is expecting a pick-up in inquiries from Australians wanting to invest in Dubai and New Zealand’s real estate markets following the property tax changes.

“Investors are not necessarily leaving Australia because they dislike property,” he said. “They are increasingly questioning whether the after-tax environment still rewards ambition, risk and long-term investment.

“Markets like New Zealand and Dubai are benefiting from being perceived as simpler, more stable and significantly more investor-aligned.”

However, a note of warning was sounded by Mark Molesworth, tax partner at professional services firm BDO, who said if an individual was living in Australia, it was much more likely that they would be treated as an Australian tax resident, who is taxable on their worldwide income.

“You’re subject to tax in Australia on rent, even if it’s derived from a rental property offshore, and you’re subject to tax on the capital gain that you make, if any, on the sale of that property,” he said.

“If an investor is looking to invest in Dubai property on the basis that it will be more [favourably] taxed than Australian property, then that’s not correct from an Australian tax point of view.”

Dubai calling? Property investors may be tempted by UAE, New Zealand2026-05-21T11:39:39+10:00

What it takes to be in Australia’s top 1 per cent

If you earn a total income of $375,378 a year or higher, congratulations; you are in Australia’s top 1 per cent of taxpayers.

And if your total household gross income is above $531,652, your household earns more than 99 per cent of Australian households.

By contrast, the median Australian taxpayer earns $55,619, while the median household gross income is $92,856, and for the lowest 10 per cent, those figures are just $11,036 and $26,181, respectively.

Among the 1 per cent, there’s been a sharp increase in income over five years. The comparable figures in 2019-20 to be considered a 1 per cent-er were total income of $315,770 and household income of $460,028, which amounts to a rise of 19 per cent and 16 per cent, respectively.

These figures – derived from Australian Taxation Office and Australian Bureau of Statistics data by the Grattan Institute – provide one snapshot of wealth in Australia.

Grattan published the material ahead of Tuesday’s federal budget to help contextualise debates about the budget winners and losers, providing additional insight into what Australians earn and own.

Earnings discrepancies

If you’re thinking the income figures – and especially the average – seem lower that the figure you’ve typically seen quoted, you’d be right.

The most commonly quoted earnings figure is average full-time earnings (currently $104,765 a year), but this figure has limitations, such as excluding part-time workers.

It’s the kind of figure that leads us to think Australians are better off than they actually are.

Grattan’s housing and economic security program director Brendan Coates, deputy director Joey Moloney and associate Matthew Bowes say average full-time earnings is “not a good guide to the typical Australian’s income”.

“More than three-quarters of Australian workers earn less than the average full-time wage of $104,765 a year.”

Instead, considering the median is a more instructive measure. On this basis, the median full-time worker earns $90,416, a figure that drops to $67,786 when part-time workers are accounted for.

Location matters

To some extent, what you earn is a function of where you live.

Western Australia has the highest percentage of taxpayers in the top 45 per cent tax bracket – those who earn more than $190,000 – at 5.5 per cent. NSW and the ACT are not far behind, lagged by Victoria and Queensland.

But even in high-wage Sydney, those in the top tax bracket are an elite class; just 7 per cent of Sydneysiders earn an income that puts them in the top tax bracket, Grattan’s analysis shows.

Net wealth

Wealth isn’t solely a function of income. Debt has a big role to play, as do other assets such as your home, superannuation and investments.

By considering all of these factors, Grattan has calculated how much you need in total household net wealth to be considered in the top 1 per cent in Australia.

And not surprisingly it varies by age. Those between 25 and 40 require net wealth of $3.1 million to be in the top 1 per cent, while for those aged 41 to 64, that figure jumps to $7.7 million.

Households of over 65s have the highest net wealth – with the top 1 per cent of households controlling over $10.9 million each. This makes sense, given they’ve had more time to accumulate their wealth.

By contrast, the bottom 25 per cent of households have total net wealth of $78,000 for those aged 25 to 40, $332,000 for those aged 41-64 and $433,000 for those aged 65 and over.

Super and home equity

One of the questions people frequently ask about their super balance is how it compares to others their age.

Whether you’re tracking for a $5 million, $2 million or $500,000 retirement, where does your super rank in comparison to your friends and neighbours?

Super balances are another metric where age plays a significant role. The longer you’ve worked since 1992 – when employer contributions became compulsory under the super guarantee – the more you’ve received, and the more time that money has been invested.

Despite not having compulsory super their entire working lives, the 65+ cohort still has the highest balances across the age cohorts among the 1 per cent – with $2 million for individuals and $3.3 million for households – possibly as a result of moving assets into the lower tax super environment as they reach retirement.

But many in this cohort also have no super – the median balance for the 65+ age group is actually $0 – which can be attributed to the older end of this cohort having missed out on the super guarantee, and many older women spending little, if any, time in paid employment.

To have a super balance among the top 1 per cent if you’re 41 to 64, you’ll need $1.4 million as an individual or $2 million as a household, while a much lower balance of $293,000 for an individual or $473,000 as a household will get you there if you’re aged 25 to 40.

It’s a similar story for home equity, with those 41 and over – who typically bought their homes earlier and less expensively – having ridden successive property booms and paid down their mortgages significantly.

To be in the top 1 per cent for home equity, over 65s need equity of $3 million in their homes, while for 41 to 64-year-olds it’s $2.8 million and for those aged 25 to 40 it’s $1.3 million.

The overall picture

As shown above, what you need to rank in the top 1 per cent by all measures varies according to your age.

Regardless of your age, you need $375,378 in individual income, $531,652 in household income, but in terms of net wealth, super and home equity, the older you are, the more you need to maintain poll position.

What it takes to be in Australia’s top 1 per cent2025-04-11T09:32:12+10:00

So long, London – Russians buy digs at home

THREE years into the war with Ukraine, Russia’s wealthiest are increasingly bringing their money home, fuelling an unlikely rebound in high-end Moscow real estate.

Faced with fewer options to spend abroad as international sanctions force banks to crack down, many Russians are repatriating cash and parking it in the safe haven of domestic property. Others are using real estate as a hedge against inflation that has surged since the invasion of Ukraine, forcing the central bank to jack up rates to record highs.

“The screws are being tightened on people with Russian citizenship around the world,” said Ekaterina Rumyantseva, founder of Moscow-based luxury real estate broker Kalinka Ecosystem. “Everyone now realises that the safest place to keep capital is in your own country.”

The influx of cash is helping Moscow buck a slowdown hitting other real estate markets from London to Hong Kong. Luxury apartment sales priced at 1.95 million roubles (S$26,703) a square metre and upwards in Moscow gained almost 40 per cent last year, according to NF Group, formerly known as Knight Frank Russia. And prices increased 21 per cent, pushing the Russian capital squarely into the same price tier as Paris and London.

A flurry of high-end apartment and villa projects springing up across Moscow give a glimpse into Russia’s uneven economy as the war grinds on. Government spending related to the invasion has stoked growth, but also inflation and higher rates. At the same time, widening sanctions are choking off the opportunity for Russians to invest overseas, forcing them to repatriate cash and seek a safe haven within their own borders.

And while many large Russian fortunes have been minted over recent years, the latest dynamics are driving some high-end properties to the eye-watering levels more commonly seen in Dubai or London.

Take the 12,500 square feet Art Nouveau-style towered residence in the Levenson project, built in the early 20th century by prominent architect Fyodor Schechtel and located in a renovated mansion in Moscow’s historical core. The project includes two dozen apartments and is being built by Vesper, one of Moscow’s biggest developers of luxury property. The home is near the Patriarch’s Ponds, where the family of Leo Tolstoy used to skate in winter, and was among the most expensive properties sold last year at about 3.8 billion roubles, according to Kalinka.

Many of the high-end projects being developed are located in central areas near the city’s biggest attractions and have vast onsite parks.

“Developers have started to offer unique expensive lots within elite houses more often,” said Dmitry Khalin, managing partner at Intermark Intown Sales, which formerly operated in Russia under the Savills brand. “We see a high demand for expensive residences with good views.”

The Kamishy project, based in the exclusive Zhukovka suburb on Moscow’s western outskirts, is emblematic of the new projects coming online. It includes 11 two-storey villas containing floor-to-ceiling windows and minimalistic interiors, surrounded by gardens and bordered by the Moskva river. Prices start at US$25 million and reach as high as US$45 million. Five have already been sold. The architect is Yury Grigoryan from Meganom, who designed the “skinny” 262 Fifth Avenue skyscraper in New York.

While precise details on the identity of the buyers flooding into the market are difficult to come by, Kalinka said that the majority are aged between 40 and 50. Typically, they are owners of large industrial companies or top managers, but also include clients in IT, show business and sport.

Against the volatile economic backdrop of the war, they see real estate as a refuge from gyrations in local assets including the rouble. While the Bank of Russia’s key interest rate at 21 per cent offers attractive rates on deposits, the local currency sank about 25 per cent last year.

People are taking “a balanced approach to asset diversification”, according to Andrey Solovyev, partner at NF Group.

The dynamics in Moscow’s property market contrast with other global cities traditionally popular with the Russian diaspora. London, for example, gained the Londongrad moniker after attracting residents such as Roman Abramovich and Mikhail Fridman. The UK capital’s top end market had a lacklustre year in 2024 and is forecast to fall this year.

To be sure, wealthy Russians are not turning away from foreign real estate altogether, with the Indonesian island of Bali and Thailand seen as among the most in demand. But they are fast dropping down the leaderboard of buyers in places such as Dubai, a notable development given it was a magnet for many after the invasion. Russian passport holders slipped to No 9 last year in the rankings of the top 10 real estate buyers there, after holding the No 1 slot in 2022, according to local broker Betterhomes. That comes as the city sees a huge influx of global wealth.

Overall, demand among wealthy Russians for foreign real estate fell 24 per cent last year compared with 2023, according to Intermark.

Back in Moscow, high interest rates and rising construction costs may cool the pace of high-end property supply this year. Developers may be forced to accumulate land banks instead of launching new projects, according to NF Group’s Solovyev.

Other developments are also springing up, though, in other parts of the country to take advantage of the influx of cash.

Sochi, the Black Sea resort which hosted the 2014 Olympic Winter Games, is among the most popular locations for wealthy Russians seeking to buy property. More recent high-end projects there include the Mantera Seaview Residence – a complex spreading over six hectares which includes a hotel, residences and a plethora of amenities ranging from saunas to a snow room. BLOOMBERG

So long, London – Russians buy digs at home2025-02-13T16:36:30+11:00

Financial Planning Message – December 2024

Following two remarkable years of global equity returns, it is understandable to approach 2025 with degree

of trepidation.

As the curtain draws on 2024, we are heading into 2025 with the same concerns we had at the start of 2024,
namely high interest rates, inflation and uncertainty/ geopolitical risks.

  • All eyes are on the sluggish Chinese economy and consumer sentiment, more importantly how the government stimulus measures will play out to revitalise the real estate sector, boost liquidity and increase demand to cater for overproduction. The potential of increased tariffs under the Trump administration will further exacerbate these challenges.
  •  2024 was the year of elections, more than 60 countries went to the polls, ( 50% of the world’s population ), this in turn created opportunity for the ‘improbable becoming possible’.
  •  Equity markets have largely navigated through the volatility of the bond market, however it is likely that the significant spike in yields going forward will weigh on equity valuations.
  • An optimistic outlook for the US – the base case is that the US ( as the main driver of financial markets ) is expected to progress to a ‘soft landing’ which is supported by further easing of interest rates, increased corporate earnings due to lower corporate tax, further de regulation of the financial sector and an increased investment in technologies leading to improved productivity.
  •  The Australian Economy faces many challenges in 2025. The economic risks in China, being our key trading partner, will impact adversely and become more evident as we progress into 2025. These challenges will be further compounded by high inflation from the geopolitical environment, higher government spending / deficits, inequality and no productivity for almost a decade will weigh on the RBA in keeping interest rates higher for longer.
  • A recent Mckinsey report on the Australian economy notes that our business investment is now at recession level, our productivity growth is at 30th place out of 35 developed countries, living standards are declining and are at a national emergency level. Our GDP growth now is the weakest since the 1990’s recession ( excluding Covid-19 ).

Federal Government spending hit 12.3% of Nominal GDP in September 2024.

The ‘Golden goose’ that produced our fair and prosperous society is gasping for air – (Mckinsey)

On balance, it appears there will be significant headwinds for the Australian households and the economy in
general as we enter 2025.

 

Accordingly, the festive season is a great time to enjoy a break but also make time to reflect on the past, take control of the present and ‘sow the seeds’ of success for tomorrow.

Some practical steps to align your long term strategy may include :-

  • Review Superannuation – Multiple funds or funds with high costs and low performance compromise your long term / retirement plans.
  • Review Non Super Investments – Re-evaluate performance and tax effectiveness, also rebalance / diversify.
  • Review cashflows and eliminate unnecessary lifestyle costs in light of the prevailing environment.
  • Let’s not forget managing your tax position, this is always relevant be it during your working life, in retirement (with respect to investments) or as part of your estate plan.
  • Make incremental savings ‘dollar cost average’ as opposed to taking a significant position when
    investing.
  • Diversification and history are our best friends, reflect and actively rebalance asset allocations.
  • Consider Dividend Reinvestment Plan (DRP) given the attractive investment returns.
  • Confirm borrowing / refinancing options well before due dates and explore potential savings across
    relevant lenders – competition appears to be intensifying across the major lenders.
  • Insurance is always important, potentially critical during extreme business cycles as are likely to
    unfold in 2025. It is not desirable to execute forced sales at depressed values.
  • Those running a business – Document a business plan, complete a business valuation and be aware
    of the Small Business Capital Gains Tax concessions (SBCGT ).
  • Explore and utilise First Home Incentives – Including The First Home Super Saver Scheme ( FHSS ).
  • With the festive season upon us, I would like to take a moment to express my sincere gratitude to all our
    clients and associates, thank you for placing trust in AMCO.

In January 2025 AMCO celebrates 28 years since inception. The practice was founded on the vision of creating a long-term wealth management firm that enlarges and enriches the lives of those with whom we interact.

We are aware of the challenges you are facing during these uncertain times and are there to advise and navigate the environment with professional care.

From the team at AMCO, we wish you and your family good health, peace of mind and prosperity in the year ahead.

 

Merry Christmas.

Danny D. Mazevski
Chartered Tax & Financial Adviser
FIPA CTA FTMA MBA (Un.NSW/SYD) Dip.FS JP

 

Any advice in this document is of a general nature only and has not been tailored to your personal circumstances.
Please seek personal financial and or tax advice prior to acting on this information

Financial Planning Message – December 20242025-01-07T16:20:03+11:00

How far will Sydney and Melbourne house prices fall in 2025?

Sydney and Melbourne housing prices could fall by 5 per cent in 2025, driven lower by a glut of listings, unaffordable prices and high interest rates, the latest Housing Boom and Bust report by SQM Research predicts.

Property prices in Canberra and Hobart are also predicted to drop by up to 6 per cent and 3 per cent respectively.

Report author and SQM Research managing director Louis Christopher said the bulk of the forecast price falls would occur in the first half of next year before interest rate cuts, which are expected by the June quarter.

“Current interest rate settings are biting the community more in these cities which, on our measurements, are in overvalued territory and/or are experiencing slower economic growth compared to the cities and states that have enjoyed good economic growth,” he said.

“However, once interest rate cuts do occur, we are expecting a speedy bounce in demand for Sydney and Melbourne in particular, which both are still experiencing underlying housing shortage relative to the strong population growth rates.

“This may well mean there is a good window for buyers at this time for our two largest capital cities.”

Sydney home values started to weaken last month, albeit marginally, falling by 0.1 per cent, while Melbourne slipped by 0.2 per cent, separate CoreLogic data shows.

However, the pace of decline has increased over the four weeks that ended on November 24, with CoreLogic’s daily index showing prices falling by 0.2 per cent and 0.3 per cent in the markets respectively.

The two leading indicators for housing prices – auction clearance rates and the amount of stock on market – suggested price drops in those cities would persist, Mr Christopher said.

Clearance rates have slumped to the low 40 per cent range across Sydney, which historically has indicated housing price falls of a moderate to potentially heavy extent, according to SQM’s data. Melbourne’s clearance rates have fallen to around 45 per cent, signalling an ongoing downturn.

At the same time, stock on the market has piled up. Stock levels are running higher than the start of the downturn of 2018 to 2019 – a period where Sydney housing prices fell by about 12 per cent from peak to trough.

‘Ripe for a correction’

Similarly, in Melbourne, total listings have blown out to about 42,000 dwellings – 5000 above the long-term average, and a level that has created housing price falls in the past, SQM’s analysis shows.

“The Sydney housing market is ripe for a correction. Our leading indicators tell us it’s happening, and our fair valuation models tell us it should be happening,” Mr Christopher said.

“Melbourne currently has a surplus of properties and the situation has deteriorated over the course of 2024, indicating an ongoing weakness in the market.

“But we’re not expecting a house price crash because there’s still a considerable shortage of homes in those cities compared to underlying demand for accommodation.”

By contrast, house prices in Perth, Brisbane, Adelaide and Darwin are expected to pick up steam.

Perth prices are forecast to rise by up to 19 per cent, the sharpest increase of all capital cities, followed by Brisbane with 14 per cent growth, Adelaide with 13 per cent rise and Darwin with 8 per cent gain.

While still the largest gains in the country, they are slower than the increases notched up so far this year. As at the end of October, Perth dwelling values had increased by 24 per cent, Brisbane was up by 14.5 per cent and Adelaide by 14.8 per cent according to CoreLogic.

“We’re seeing nothing in those markets that suggests an imminent price decline,” Mr Christopher said.

“Stock levels are extremely tight, demand is very strong due to ongoing population growth and their economies are doing well.”

Interest rate factors

Mr Christopher’s base case prediction – one of the four potential scenarios – assumes interest rates fall by 0.5 per cent by mid-next year.

The forecast is also based on the assumptions that population growth is at least 500,000 over 2025, and that there are no new spikes in inflation that would trigger a rate rise or would prompt the RBA to hold off easing.

In a second scenario where there is no rate cut, but no surge in inflation, and with population still increasing by 500,000 or more, house prices in Sydney and Canberra would tumble by 8 per cent, Melbourne by 7 per cent, and Hobart by 5 per cent.

It will reduce Perth’s price gains to 11 per cent, Brisbane 9 per cent, Adelaide by 8 per cent and Darwin by 7 per cent.

Paul Bloxham, HSBC’s chief economist said the risk of the Reserve Bank not cutting interest rates has increased.

“On a core basis, the economy is still operating at, probably still a bit beyond its full capacity, and the very slow decline in inflation means the RBA really can’t consider cutting interest rates anytime soon,” he said.

“The job market is still at, or slightly beyond full employment and does not appear to be loosening further at this stage.

“If it turns out the job market is not loosening further, then rate cuts may not happen at all. At the moment, we think there is a 25 per cent chance that interest rates don’t get cut at all in 2025.”

Oxford Economics senior economist Maree Kilroy said while interest rate cuts could be delayed until June next year, they would be deeper than what the market was predicting.

“We’re expecting the RBA to slash the cash rate by a total of 1.25 percentage points to bring it back to neutral settings,” she said.

“This will improve mortgage affordability and help price growth in the following year.”

How far will Sydney and Melbourne house prices fall in 2025?2024-11-28T16:07:46+11:00

House prices fall in 40pc of Sydney Suburbs

House prices are now falling across two out of every five Sydney suburbs, a five-fold increase from a year ago, and the highest level in 20 months, data from CoreLogic shows.

The share of Melbourne suburbs where house values dropped in the past three months also blew out to 76.3 per cent, six times higher than last year.

Tim Lawless, CoreLogic’s research director, said the downturn was becoming more widespread as stock levels rose, borrowing capacity shrank and affordability worsened.

“We’re now seeing a fairly broad-based, but so far, mild downturn,” he said. “Sydney is still in the early phase of the downswing, so we’ll probably see more suburbs where house prices drop in the coming months.”

Sydney home values fell by 0.1 per cent last month, the first monthly decline in almost two years, while Melbourne dipped by 0.2 per cent as the housing outlook dimmed.

The number of Sydney suburbs where house prices fell over the past three months to October jumped to 225, up from just 46 last year.

Similarly in Melbourne, values have dropped across 290 suburbs, a sharp rise from only 48 a year ago.

Louis Christopher, SQM Research managing director, said house prices in both cities were on track to fall further in the coming months.

“Auction clearance rates are now falling in Sydney, well beyond the seasonal weakness, and we’re seeing a marked increase in distressed selling across Melbourne,” he said.

“There are now 1117 total distressed listings in Melbourne as of November 6, which is the highest level since we started tracking in 2020.

“In the past year distressed selling surged by 28.4 per cent, which tells me there are more property owners that are struggling financially, as confirmed by the rising default rates,” Mr Christopher said.

Moody’s Ratings analysis showed mortgage delinquency rates increased across the country over the year to May. Melbourne emerged as the epicentre of arrears. The portion of mortgage defaults across the city increased by 0.73 of a percentage point to 2.54 per cent, just behind Hobart, which posted a 1.3 percentage point rise in arrears to 2.68 per cent.

Melbourne dominated the top 20 suburbs with the highest mortgage default rates. Fourteen suburbs posted delinquency rates as high as 5.37 per cent. By contrast, many suburbs with the lowest default rates were in Brisbane and Sydney.

However, there are signs that worsening affordability has started to weigh across Brisbane, as house prices dropped in 36 suburbs out of 326, an eightfold rise from just four suburbs last year.

House values lower

Nationally, house values for about one out of three suburbs have drifted lower, which is more than double from a year ago.

By contrast, the number of Adelaide suburbs where house values fell over the past three months shrank by about half, while prices in all Perth suburbs rose during the same period.

The surge in listings across the biggest capitals has significantly outpaced demand, which has weighed on prices.

Total listings climbed by 7.1 per cent across Sydney over the past four weeks to November 3 compared to a year ago and lifted by 4.2 per cent and 4.9 per cent in Melbourne and Brisbane, respectively.

Total listings are now 13.2 per cent above the previous five-year average in Sydney and 13 per cent higher in Melbourne.

“Values are still falling in Melbourne because of a big increase in listings by disgruntled investors selling up in Victoria,” said Scott Kuru, co-founder of property investment advisory Freedom Property Investors.

“Nevertheless, this is a great time to buy in Melbourne. Melbourne property is seriously undervalued at the moment, especially when you look at population inflows – from overseas and other states – to what’s arguably now Australia’s largest city.

“Buying conditions probably aren’t going to get much better in Melbourne, but if you see a great investment grade property in Brisbane or Sydney I wouldn’t hang around on the off chance prices might decline,” he said.

Sydney downturn ‘accelerating’

The upper end of the housing market posted the sharpest decline of up to $326,000 in just three months as demand wanes amid higher borrowing costs and property prices.

House prices in Rodd Point in Sydney’s inner west, along with Abbotsford and Balmain East slumped by at least 7 per cent or the equivalent declines of between $221,797 and $325,846 during the same period. Those suburbs have also dropped by 8.2 per cent, 7.6 per cent and 2.1 per cent in the past 12 months respectively.

“The downturn in the top 25 per cent of the housing market, particularly in Sydney is clearly gaining some momentum,” Mr Lawless said.

“House values in this segment had been falling since June last year and in the past two months alone, they declined by 1.1 per cent, which is nearly twice as fast compared to the previous two months.

“So, it doesn’t look like this trend is turning around. It seems like it’s actually accelerating,” he said.

Across Melbourne, house values in inner suburbs Albert Park, South Melbourne and Port Melbourne tumbled by 9 per cent, 8.6 per cent and 8 per cent respectively, equating to a loss of between $132,882 and $213,677 in the past three months.

In Brisbane, Teneriffe led the largest drops in house values, at 4.8 per cent or a decline of $100,571 in the median.

House prices in suburbs within Adelaide’s Central and Hills district also weakened, with Hazelwood Park, Rosslyn Park and Kensington Garden posting 3 per cent, 2.6 per cent and 1.8 per cent respectively.

House prices fall in 40pc of Sydney Suburbs2024-11-25T17:06:59+11:00

Why Melbourne’s housing market is primed to outperform all capitals

Melbourne’s housing market could outperform Sydney and other capital cities once it emerges from its current downturn, boosted by a marked improvement in affordability after years of weak growth, experts say.

Nicola Powell, Domain’s chief of research and economics, said house price declines in Melbourne could gather momentum over the near term as listings rise faster than demand.

“I think Melbourne still has its challenges with taxation, higher supply and weaker population dynamics, so the immediate outlook is still one of a struggle,” she said.

“But I believe that once we see rates falling and particularly if we see a handful in succession, that is likely to be a spark for pricing.

“So in the next cycle, we’re likely to see Melbourne overperform because it has underperformed significantly compared to other capital cities since March 2020,” Dr Powell said. “That’s exactly what we’ve seen in Perth when it underperformed during the 2010s and then prices exploded in the 2020s as it played catch up.”

Melbourne-based property investor Patrick Van is counting on that sharp upturn and plans to ramp up his portfolio.

He is in the process of settling his second investment property in the city, a two-bedroom, two-bathroom off-the-plan apartment in North Melbourne, and aims to buy another in the coming months.

“I think Melbourne offers excellent value for money compared to other cities, and the state government just slashed stamp duty for off-the-plan properties,” he said.

“Even with higher interest rates and property tax, and despite the prospect of weaker capital growth over the next few months, I believe Melbourne will take off once interest rates start dropping next year.

“So I’m happy to sacrifice the lack of growth over a short period of time for the potential of making a windfall over the medium to long term because property investing is a long-term strategy, not a get-rich-quick scheme.”

AMP capital’s Shane Oliver said Melbourne could lift between 7 per cent and 8 per cent in the next upswing, while Sydney was on track to gain about 5 per cent.

“Melbourne’s been lagging for some time, but it has made the property market relatively cheap compared to Sydney and the other cities,” he said.

“Because of its relative underperformance, it could bounce back a little bit quicker and sharper. ”

Since the onset of the pandemic in March 2020, Melbourne’s home values have increased by just 10 per cent.

By contrast, Sydney climbed 29 per cent, Brisbane was up 67 per cent, Adelaide jumped 71 per cent and Perth surged by 76 per cent, according to CoreLogic.

“It doesn’t make sense for Melbourne to stay the cheapest among the top five capital cities, so it is bound to come back and outpace any other capital city in Australia,” said Scott Kuru, co-founder of Freedom Property Investors.

“This is likely to happen because of lower interest rates, more affordable housing and government support. So, it’s only a matter of time before Melbourne becomes the second most expensive Australian city to buy a house in again.”

However, Ray White chief economist Nerida Conisbee said Melbourne’s recovery could take longer than market expectations.

“I think the downturn will be prolonged, even with rate cuts,” she said.

“I think there are other bigger problems that will take longer to fix, such as the prohibitive tax system, poor confidence and weak economy.”

Why Melbourne’s housing market is primed to outperform all capitals2024-11-25T17:00:38+11:00

‘Worse before it gets better’: housing targets in doubt

Labor and the Coalition are both on track to miss ambitious targets to address Australia’s housing crisis, as skills shortages and sluggish planning approvals leave would-be home owners stuck renting.

The latest Deloitte Access Economics business outlook report says the Albanese government will probably deliver fewer than a million new homes by 2029 – at least 200,000 below its promised target.

“The housing crisis will get much worse before it gets better,” Deloitte says. “House prices will need to increase before the necessary boost to supply can be delivered profitably.”

Worse still for Labor, new Housing Industry Association research has found the target for 1.2 million new homes within five years would require a 50 per cent increase on current construction levels.

To meet its promise, Labor needs an average of 240,000 new homes need to be built each year. But Australia has only ever come close to that level twice, in 2016 and in 2021. Last year only 173,000 homes were completed.

Housing is set to dominate the federal election campaign, with a growing fight over supply and renters’ rights. Faced with a Greens legislative blockade, Labor agreed with the states to fast-track construction of 1.2 million homes.

But the HIA report says the industry does not have the required workforce capacity to get close, finding about 30 per cent more tradies are needed.

“The housing shortage that is driving up housing costs for Australian households can only be reduced through the efficient delivery of new housing in greater quantities than has been achieved in the past,” it says.

“The workforce of housing industry must grow if this is to occur.”

Opposition Leader Peter Dutton last week pledged expedited construction of 500,000 homes within five years, with a policy to spend $5 billion on water, sewage and other enabling infrastructure to speed up shovel-ready developments.

The Coalition would also block additional changes to the National Construction Code for 10 years, to reduce compliance costs and delays.

Deloitte partner Stephen Smith said the lack of skilled construction workers was a key driver of the housing shortage. BuildSkills Australia, the federal government’s jobs and skills agency, estimates 90,000 workers are required.

“With permanently higher construction costs, the sector will be both unwilling and unable to lift supply unless property prices also lift,” he said. “That is, housing affordability will get worse before it has a hope of getting better.”

Deloitte revised down its forecast of dwelling activity, forecasting fewer than a million new dwellings will be built over the next five years.

HIA senior economist Matt King said the workforce shortages were dogging capital cities and regional areas.

“The new-home building industry is in stiff competition for workers with buoyant non-residential construction activity and a historic Commonwealth government-funded engineering construction project pipeline,” he said.

Mr Dutton said his plan was very realistic and had been designed in consultation with groups including the HIA , the Property Council and Master Builders Association.

“All of them have fully endorsed the policy, and every economist will tell us that we need to get more supply into the housing market, given the demands that are there, given the population growth, and I believe it’s entirely possible,” he told ABC radio.

Housing Minister Clare O’Neil blamed the former Coalition government for the housing crisis.

And Labor’s $32 billion housing policy was being significantly delayed by roadblocks from the Greens and the Coalition in parliament.

Ms O’Neil said more houses were needed in greenfield developments and through increased density in existing areas.

“We need to assist with greenfields development, as our government is doing. We also need state governments to step up a bit on planning reform that will enable us to do infill in existing suburbs,” she said.

‘Worse before it gets better’: housing targets in doubt2024-10-24T16:39:26+11:00