Property

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.”

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.

The total worth of Australia’s housing market surged to a record $11 trillion in September as more homes were built and prices continued to rise despite higher interest rates, data from CoreLogic shows.

Home values increased by 6.7 per cent in the past 12 months, delivering a $900 billion windfall to residential property owners.

Over the year to June, a total of 176,000 new homes were also completed and added to the market, according to the Australian Bureau of Statistics.

Kaytlin Ezzy, CoreLogic’s economist, said the total value of the residential sector would continue to rise in the coming years as more homes were built, and dwelling prices lifted further.

“The government hopes to add 1.2 million new homes over the next five years, which would definitely help push the overall value for the Australian residential market higher,” she said.

“We’re also expecting prices to rise over the near to medium term, although the pace of growth would likely ease as we move into spring with more supply coming online.”

Shane Oliver, AMP chief economist said the record high valuation proved the housing market’s resilience and its long-term track record of rising prices.

“This shows that household wealth, which is largely tied to residential real estate, is strong and continuing to rise,” he said.

“Property has come to be relied on as a good way to build wealth, so people still want to get into property, and once there, they do whatever they can to service their mortgages, even if it involves giving up on things for a while.

“But it’s getting harder each year as property prices rise faster than people’s incomes do, which is resulting in greater levels of wealth and intergenerational disparity.”

While price growth is expected to slow in the coming months, the prospect of long-term capital gains would likely entice more property investors, who were already returning in droves, back into the market, Ms Ezzy said.

National home values rose by just 1 per cent in the September quarter, the softest quarterly rise since March 2023.

New listings rose 2.1 per cent over the year to October 6, marking the strongest start to the spring selling season since 2021.

“The surge in new listings have also contributed to the slowdown in value growth as the market absorbs the additional stock,” Ms Ezzy said.

“As we move through spring, we’re likely to see further moderation in value growth as new listings continue to rise, providing some relief for home buyers who have faced intense competition over the past year.

“The increase in available stock is also providing more opportunities for investors to enter the market, which wasn’t the case during last year’s constrained conditions.”

The share of new investor loans surged to 38.6 per cent in August, the highest level since 2017 when the Australian Prudential Regulation Authority further tightened lending rules to investors by limiting the portion of interest rate only loans to 30 per cent of all lending.

“The high investor activity is likely due to the perceived opportunities for capital gains over the long term and tighter rental market conditions driving potential yield growth,” she said.

In the past 10 years, house values climbed by 85.9 per cent nationwide, or the equivalent of $403,349, while units gained 41.2 per cent or $193,706.

Sydney’s house prices climbed by 95.2 per cent to $1.47 million, Brisbane jumped by 97.8 per cent to $973,534, while Melbourne lifted by 70.4 per cent to $925,762.

Adelaide house values rose by 94.9 per cent to $856,856, Hobart was up by 89.6 per cent to $692,504 and Canberra by 77.9 per cent to $966,684.

Despite Perth’s recent strong showing, house prices only increased by 58 per cent in the past 10 years to $830,965.

Sydney’s premium suburbs Bellevue Hill and Dover Heights topped the biggest gainers, with values more than doubling in the past decade. Their house prices increased by $6.8 million or 162.1 per cent to $11 million, and by $3.7 million or 144.6 per cent to $6.23 million respectively.

House prices in cheaper suburbs Leppington and Ruse in the south-west also rose sharply, increasing by 164.7 per cent and 140.5 per cent respectively.

Across Melbourne, suburbs in the Mornington Peninsula such as Somers, Portsea and Sorrento dominated the long-term performers, with their median increasing by more than 140 per cent.

House prices in Brisbane’s D’Aguilar in the city’s north and Robertson in the south racked up the largest gains at 167.7 per cent and 148 per cent respectively.

News feature Affordability, supply, interest rates and high immigration create a scenario in the US that is all too familiar, writes Matthew Cranston.

Abla Assikouyo, a nanny who emigrated from Togo, and her husband Komi, who works at an Amazon warehouse, have just experienced one of life’s great challenges: buying their first home in America.

But the couple’s experience was made almost unbearable by pressures all too familiar to millions of Australians: cost-of-living strains, rising home prices, high interest rates, and supply shortages.

‘‘It was very, very difficult,’’ says Abla, 35, who has three children. ‘‘We got a loan approval for $US500,000, but then they reduced it to $400,000 because of our jobs and our expenses like car loans. So, even when we found the right house, it was difficult for us to pay.’’

A months-long search finally yielded a three-bedroom home in the county north of Washington for $US475,000 ($712,000), still well above their loan offer. However, one of America’s largest lenders agreed to cover all but their deposit of just 3 per cent, charging a 6.99 per cent interest rate.

‘‘We were lucky. My [extended] family started looking before us for one year, and they could not get anything. They had a loan, but they couldn’t buy one, so they went back to renting. The competition is very bad,’’ says Abla

As in Australia, America’s first home buyers are struggling to break into the market. Despite high interest rates, which often depress prices, supply constraints and new housing stock shortages are keeping prices relatively high.

The result is that affordability in the US, while not as bad as Australia, has deteriorated. The classic measure of affordability – median home price to median household income – varies widely from one population centre to the next, but the average, of four times, is high by historical standards, according to analysts Demographia.

In Australia, average prices are nine times household income.

Consequently, first home buyers now account for just 30 per cent of purchases in the US, down from 50 per cent 10 years ago.

In Canada, where the federal government has announced billions of dollars in new loans and tax breaks, housing affordability has also worsened, despite a recent jump in new home starts to their highest level in seven months.

In the US and Canada, the housing crisis has been aggravated by a surge in immigration, also a key contributor in Australia. With America’s growing immigration problems, demand is outpacing supply. US residential property prices increased 5 per cent in the past year, despite the 22-year-high interest rates. Rents are also still rising at more than 5 per cent a year.

Supply is lacking. The seasonally adjusted number of new private housing units under construction in the US has fallen for the past five months and is down 4 per cent from this time last year, despite hitting a record 1.7 million last July. Economists expect another low number when the latest figures are released on Thursday (Friday AEST).

President Joe Biden has pledged to tackle the crisis, but experts say his administration is too focused on making it easier to buy homes, rather than increasing the number available.

‘‘Government is very good at adding to demand, but very poor at adding to supply,’’ says Edward Pinto, co-director of the American Enterprise Institute’s Housing Centre.

‘‘When you have a supply shortage, and you increase demand, the inevitable result is that prices go up. And so, rather than making housing more affordable, the government makes it less affordable. That in a nutshell is the problem we face,’’ he tells The Australian Financial Review.

Biden is promising to add 2 million new ‘‘affordable’’ homes to the market if he gets tax credit legislation passed in Congress. Prime Minister Anthony Albanese has set a target of 240,000 new homes a year – twice the number currently being built in Australia.

Biden is proposing a $US10,000 tax credit for first-time home buyers and those who sell their starter homes. His administration estimates the credit would reduce the mortgage rate on a median home by more than 1.5 percentage points for two years. More than 3.5 million middle-class families could benefit, it says. Presidential rival Donald Trump has not announced any major policy on lifting affordable supply. But he says one solution is to remove investment property tax credits, something Australia’s Labor Party proposed during the 2019 election.

Pinto agrees abolishing tax deductions for second homes could make a difference to supply. ‘‘If the government stopped subsidising second homes through the interest deduction, those existing homes could convert from second homes to primary residences. It would decrease demand because people wouldn’t be buying as many second homes,’’ he says.

Some 700,000 homes would shift from being second homes to primary residences over 10 years if the idea went ahead, Pinto’s institute has calculated. But Congress is unlikely to agree on the initiative, as many legislators who own second homes would take a hit, he says.

While governments in Australia, the US, Canada and elsewhere are struggling with measures to boost supply, others are tackling the situation by getting out of the way. A surge in illegal immigration has resulted in skyrocketing home prices in California, prompting an exodus of residents to Texas, searching for cheaper houses.

That’s proved an economic boon for Texas, which has a low regulatory environment. Texas built more homes than any other state in the year to July 31, 2023, adding 260,000 – more than twice as many as California, according to the US Census.

Texas home builder Steve Boyd says his higher-end home building business has grown at 10 per cent every year for the last few years. He’s been able to hold his margin despite rising costs.

‘‘The demand has been really good for us,’’ he says. ‘‘But I don’t see how the government can help the supply, though. Maybe removing more regulation.’’^AFR

The Albanese government will go to the next election with a worthy $32 billion worth of housing programs – and next to nothing to show for it.

Tenants will still be squeezed by high rents; mortgage holders will still be paying much more than they once hoped; and first home buyers will still face the daunting hurdles of high deposits and unaffordable repayments.

Which opens the way, either before the election, or in negotiations over a possible hung parliament afterwards, for popular but flawed silver bullet solutions.

The Coalition proposes to release super for home buyers; the Greens argue for a rent freeze; and many – most eloquently the Greens but also key crossbenchers and a strong cohort within Labor ranks – want changes to negative gearing and capital gains tax.

The debate over the taxation of housing has been revived by senators Jacqui Lambie and David Pocock, by Westpac chief economist Luci Ellis and, most recently, by the government’s National Housing Supply and Affordability Council in its inaugural State of the Housing System Report.

‘‘A gradual transition to a more consistent (tax) system across tenure types may contribute to a more equitable housing system,’’ the report says.

Today’s graphic, created from ABS data by Ray White Group chief economist Nerida Conisbee, shows how important private investors, supported by tax arrangements, are to Australia’s rental stock.

Changes over the next year will help housing markets before the election. A reduction in immigration, if it happens, would ease demand on rental markets.

Borrowers will benefit from the stage three tax cuts. Sameer Chopra, the head of research in the Pacific for real estate heavyweight CBRE, estimates that for a double-income family the July 1 tax change will provide another $110,000 in borrowing capacity.

And a dribble of housing openings will take place. In the past two months tenants have moved into 228 social accommodation homes in the Melbourne suburb of Prahran and into 130 affordable apartments in Sydney’s Macquarie Park, both part-funded by the Commonwealth’s Housing Australia and their respective state governments.

Nevertheless, the Albanese government approach, which is to increase supply, while correct, will not deliver enough homes to make a difference before the next election.

‘‘Housing affordability is expected to deteriorate further over the forecast horizon,’’ the State of the Housing System concludes.

Similarly, Treasury’s Budget Paper 1, which reported that dwelling investment declined in both 2022-23 and 2023-24, forecast no improvement in 2024-25.

‘‘Interest rates and elevated construction costs are weighing on the demand for new housing,’’ Treasury says.

The cycle will turn, with dwelling investment expected to jump by 6.5 per cent in 2025-26, but after the next election. ‘‘The government’s $32 billion housing plan will deliver the biggest investment in over a decade, enable construction of more homes, reduce red tape and planning hurdles, train the necessary workforce, and support Australians into home ownership and those in the rental market,’’ the budget paper says.

It’s a targeted suite of mostly supply-side programs, supported by many experts, and with a focus on the social and affordable housing sectors, which have been neglected for decades, and on the infrastructure and construction capacity needed to deliver new housing.

But it will take time.

Two of the landmark initiatives, the Housing Australia Future Fund Facility and the National Housing Accord Facility, which will eventually support the construction of 40,000 social and affordable homes, have been delayed in parliament, and the first tranche of funding – just finance approval, not even a start on construction – is not due to be announced until the September quarter.

Adding to the Albanese government’s challenge is a program, full of acronyms, like HAFFs, and NHAFs, which in my experience most lay people, and quite a few experts, simply don’t understand.

Eleven days before Treasurer Jim Chalmers handed down his third budget, the chairwoman of the National Housing Supply and Affordability Council, Susan Lloyd-Hurwitz, delivered the State of the Housing System Report.

Lloyd-Hurwitz says she is encouraged by the ‘‘concerted efforts’’ of the government and the ‘‘raft of reforms’’, particularly to planning, announced by states and territories.

Nevertheless, she says, the Albanese government is ‘‘unlikely’’ to meet its ‘‘suitably ambitious’’ housing target of 1.2 million new homes in the five years starting in July, ‘‘without further significant effort’’.

Lloyd-Hurwitz says ‘‘although this crisis is at its heart one about insufficient supply, there are many other contributing factors … (and) we should resist the temptation to see any one of these factors as the driving force’’.

She notes ‘‘the resumption of immigration at some pace, planning system weaknesses, rising interest rates, skill shortages, elevated construction company insolvencies, weak consumer confidence, cost inflation and low productivity in the construction sector’’.

The budget, to its credit, does not try for a silver bullet solution but does aim to address a number of those challenges.

Master Builders Australia chief executive Denita Wawn welcomes many of the budget initiatives but warns the industrial relations landscape continues to hold the industry back. She says the new industrial relations laws will cut almost 8000 jobs, and reduce new housing supply by 15,000 homes, over the next five years.

Damon Roast, the construction economist at cost management and advisory firm WT, backs the training initiatives to boost construction capacity – such as the 15,000 fee-free TAFE and VET places from January 2025 – but notes the additional trades will not be in place for several years.

‘‘On a three-year view, cost escalation in the building sector is set to increase around 5 per cent per annum across major capital cities,’’ he says.

The industry has welcomed the more than $5 billion in infrastructure funding, particularly for western Sydney and south-east Queensland.

Tom Forrest, the chief executive of developer lobby Urban Taskforce, calls the Albanese government’s commitment to funding the roads and water that underpin new housing a ‘‘Eureka moment’’.

‘‘The states need to build on this by removing, or reducing, a range of state government taxes and levies on new housing,’’ he says.

In particular, the NSW government needs to reconsider two new levies, the Sydney Water Development Servicing Plan and Housing and Productivity Contribution, which, on modelling by the Urban Development Institute of Australia, will add up to $80,000 to the cost of a new lot in western Sydney.

Those issues underline the housing challenge. All three tiers of government have much to do, but more than 90 per cent of the new homes needed will only happen if their development, construction and ownership is feasible for the private sector.

Robert Harley is a former property editor of The Australian Financial Review. He is at rob@rharley.com.au

Property Investors from Sydney and Melbourne are increasingly looking further afield in the hunt for value. But how do you go about buying in an unfamiliar property market?

When looking to buy an investment property, Sydney homeowner Alex De Muelenaere didn’t consider buying in his own backyard. Instead, the 35-year-old CFO of emissions accounting business Pathzero looked north, recently settling on the purchase of his first investment property – in Brisbane.

De Muelenaere is among a new wave of Sydney and Melbourne investors eschewing their home states to invest further afield. He says strong interstate migration, the relative affordability of property and the capital growth tailwinds expected to accompany the 2032 Olympics were the key drawcards of the Queensland capital.

With a focus on capital growth over yield, he bought a four-bedroom, two-bathroom house in the coastal suburb of Thornlands, around 45 minutes south-east of the CBD, for $920,000, with the assistance of Brisbane buyer’s agent Colin Lee, founder and chief executive of Inspire Realty.

De Muelenaere says using Lee gave him local expertise in an unfamiliar market as well as ‘‘boots on the ground’’. As a result, he was aware the property was for sale before it was listed and was able to secure it – all without leaving Sydney.

With the median dwelling price in Sydney hitting $1.15 million in April and Melbourne’s investor appeal suffering under the weight of some of the highest property taxes in Australia, investors from Australia’s two biggest states are casting their eyes elsewhere.

Data from REA Group shows 23 per cent of all property inquiries on realestate.com.au came from interstate buyers in 2023, a figure that has been rising steadily recently after hitting a low of 11 per cent during the pandemic. South Australia and Queensland attracted the highest amount of interstate interest, with 29 per cent and 27 per cent of inquiries coming from interstate buyers, respectively, followed by Western Australia.

Lee says that more than 90 per cent of his clients looking to buy in Brisbane are from interstate. ‘‘The fact that Brisbane has been outperforming all capital cities bar Perth is a really good story,’’ he says. ‘‘There’s obviously a lot of talk around the Brisbane market having not only the Olympics, but the emergence of more employment because of that. Plus, there are a lot more migrants – not only interstate but international migrants moving to Queensland.’’

Likewise, Adelaide buyer’s agent Katherine Skinner, director of National Property Buyers, reports ‘‘a huge increase’’ in interstate investors over the past four years. She says the majority are from Melbourne or Sydney and have between $600,000 and $700,000 to spend. ‘‘The buy-in price is still reasonable, and the rental yields are still strong,’’ Skinner says of Adelaide’s property market. ‘‘Adelaide is seen as a market that grows year-on-year, and we don’t tend to have downturns. That said, we don’t historically see huge double-digit swings year-on-year either.’’

Real estate agent Linton Allen, from Perth’s Empire Property, has also observed a ‘‘noticeable uptick in interest from interstate investors, particularly from Sydney and Melbourne’’. Alongside its comparative affordability, Perth ‘‘offers robust rental yields, making it an attractive option for cash-flow-focused investors’’. Historically subject to the fortunes of the mining industry, the Perth real estate market is benefiting from government investment as part of the AUKUS submarine pact and Allen says the diversifying economy means there’s a ‘‘growing optimism around capital growth prospects’’.

Herron Todd White’s April Month in Review report suggests that both house and unit prices across Brisbane, Adelaide and Perth have further to rise.

Picking the right location in an unfamiliar market can be challenging. As with any property investment, the starting point should be the outcome an investor wants to achieve.

‘‘Investors should start with clear goals: are they seeking capital growth, rental yield, or a balance of both?’’ Allen says. Lee says another factor to consider is the buyer’s appetite for renovation to add value or whether they prefer a ‘‘set and forget’’ property. Skinner encourages her clients not to focus solely on rental yield because if they do, they ‘‘tend to sacrifice capital growth in many areas within South Australia’’.

Locations close to amenities with a high ratio of owner-occupiers to renters and below-average rental vacancies are a good place to start.

Lee’s top picks in Brisbane for investors with less than $1 million to spend are Flinders View, Shailer Park and Aspley. For those with a budget of more than $1 million, he tips Carindale, Wavell Heights or Balmoral.

In Adelaide, Skinner recommends Royal Park, Albert Park, Happy Valley and Aberfoyle Park for investors on smaller budgets and blue-chip suburbs such as Prospect, Norwood, Kensington or Unley for those with a budget of $1 million-plus.

In Perth, Allen says buyers will get more bang for their buck by heading inland away from the river or coast. He picks Hamilton Hill and Spearwood for investors with less than $1 million and Beaconsfield for those with bigger budgets.

Naturally, Skinner and Lee suggest that investors will find it easier to navigate an interstate property market and achieve a better result using an expert such as themselves. But using a buyer’s agent is also recommended by Allen, who sits on the other side of the transaction.

He says interstate investors in Perth should ‘‘100 per cent’’ use a buyer’s agent, unless they are expats or very familiar with the state. ‘‘WA stands for ‘wait awhile’ – it’s a big country town and if you’re not from here, it’s a bit of a different world.’’ Allen says a buyer’s agent can help to ‘‘navigate local regulations and nuances, and potentially get you access to off-market opportunities’’.

Lee says the value a buyer’s agent can provide is in the ‘‘art’’ of property buying, providing feedback about the street, neighbourhood and community, rather than the ‘‘science’’ or figures behind a property purchase.

In Skinner’s experience, around a quarter of her interstate investor clients have tried to buy in Adelaide themselves before turning to her for help. ‘‘They have quickly realised that the advertised prices do not equate to property values’’, a quirk of the Adelaide market that makes buying ‘‘very challenging’’ for the unfamiliar.

Variations in the sales process between different jurisdictions is a key risk that unassisted buyers also face, and yet another reason why tapping into local expertise can be useful.

For example, in Adelaide once an offer has been accepted and a property goes under contract, there is typically a cooling-off period of two business days, during which time buyers will get a building and pest inspection and have the sale contract reviewed, Skinner says. ‘‘Only after your cooling-off period has expired do you actually make your deposit payment. So it’s a very different process to other states, and it is one that many clients get a little bit confused by.’’ She adds that while 10 per cent may be the standard deposit, the amount paid is more often a figure agreed on by vendor and purchaser.

‘‘The purchase process in Perth shares similarities with other Australian cities but with local nuances,’’ Allen says. For example, while offers are often made subject to finance approval and a building inspection, there is no mandatory cooling-off period in Western Australia. ‘‘A lot of people from the eastern states say ‘we’ll pop an offer in’. Well, if your offer’s accepted, subject to finance, that’s it. We’re locked in. You can’t ring me four days later and say ‘oh, we’ve had more of a think about it, and it’s all too hard’,’’ he says.

In Brisbane, offers are usually made subject to a finance approval and building inspection period of 14 days, Lee says, with a nominal deposit of a few thousand dollars payable on the acceptance of an offer, followed by a more typical 5 per cent deposit amount when the offer becomes unconditional. ‘‘Sydney and Melbourne are quite different markets altogether. They’re way too hot for any seller to allow for a subject to finance and subject to building and pest offer. You’d have to typically do all of that prior.’’

Opinions are divided on whether it’s essential to visit the location where you’re considering buying. ‘‘Many investors purchase sight unseen, relying on comprehensive virtual tours, local contacts like real estate agents and buyer’s agents, and detailed building and pest inspections to make informed decisions,’’ Allen says.

But Lee cautions that it can be dangerous to rely upon photos or videos provided by the seller’s agent. ‘‘They work for the seller, so of course they are only going to sell the good bits.’’ He recommends his clients visit before making an offer on a property.

‘‘The majority [of our clients] would have never seen their investment,’’ Skinner says. While this is not problematic in the case of investors using a buyer’s agent, she adds that if a buyer doesn’t have someone on the ground who can inspect the property on their behalf, they could be opening themselves up to a huge amount of risk.

‘‘It’s astounding how many people will put offers in sight unseen and not get a building inspection either,’’ Skinner says. ‘‘We might look at the same house, and it would not even be something we would recommend to our clients because the photos are very different to what you’re seeing in person.’’

Once purchased, managing an interstate investment property needs on-the-ground support, Skinner says. ‘‘It would be a very dangerous game trying to manage from interstate yourself and not understanding the legislation here in South Australia in terms of tenancies.’’ Allen says a local property management company and a good handyman are essential. ‘‘Staying informed about local market conditions is crucial for long-distance investment success,’’ he adds.

Lee suggests investors get three rental appraisals on their property from local letting agents and ask them questions such as how much experience they have, how many properties they’re managing, what their fees are, how often they conduct inspections and how they assess prospective tenants. SI