It’s the perfect time to invest in property
The current market presents a compelling opportunity for investors to purchase property in Australia. Several key factors, including projected interest rate cuts, easing inflation, high migration, and a housing supply shortfall, are aligning to create favourable conditions for investment.
Current interest rate environment
To control inflation and stabilise the economy, the Reserve Bank of Australia (RBA) has maintained the cash rate at 4.35 per cent throughout 2024, including the most recent decision in September. Forecasts suggest changes ahead.
Predictions from Australia’s ‘Big Four’ banks
Economists from the nation’s major banks agree that the cash rate has likely peaked, and they anticipate rate cuts starting in late 2024 or early 2025.
ANZ forecasts the first rate cut in February 2025, with the cash rate dropping to 3.60 per cent by the end of that year. Commonwealth Bank expects a cut as early as December 2024, with rates potentially reaching 3.10 per cent by the end of 2025. NAB predicts cuts will begin around May 2025, with rates easing to 3.60 per cent by the end of the year. Westpac projects cuts beginning in February 2025, with a final rate of 3.10 per cent by the end of 2025.
These forecasts signal that, while the current borrowing environment can be seen as challenging, a more optimistic rate landscape is on the horizon.
Predictions from inSynergy expert
The timing of future cuts depends largely on inflation trend, among other macroeconomic factors such as the unemployment rate, domestic GDP growth rate and global economic factors.
To this end, the future looks bright. Inflation was 2.7 per cent in the 12 months to August, down from a 3.5 per cent rise in the 12 months to July 2024. This is the lowest figure since August 2021, entering the central bank’s target range of two per cent to three per cent for the first time in three years.
The labour market has been easing, with the unemployment rate stabilising at 4.2 per cent, while wage growth dropped marginally to 4.1 per cent in the June quarter of 2024. This will reduce input costs for businesses, and, in turn, help lower the prices of goods and services.
Major economies, including the USA and the eurozone, have begun easing monetary policy with significant rate cuts: a 0.5 per cent drop from 5.5 per cent to 5 per cent in the USA, and a 0.6 per cent drop from 4.24 per cent to 3.65 per cent in the eurozone.
It is predicted that an interest rate cut could happen in early 2025, when the Board of the RBA is confident that inflation has stabilised within the target range of two to three per cent.
Fixed rate cuts
In response to these predictions, major banks have started reducing fixed interest rates across various loan products. This shift suggests that lenders expect a downward trend in variable rates in the near future. By cutting fixed rates, banks are attempting to attract borrowers ahead of the anticipated rate cuts, indicating confidence in an economic softening that could prompt lower interest rates.
Population growth and housing demand
Australia’s rapid population growth is another key driver of housing demand. Federal projections indicate that the population will grow by 1.5 million people over the next three years, equating to a new city the size of Adelaide. This surge in population, combined with a lag in housing supply due to delays in construction approvals and completions, will place ongoing pressure on property demand. As Australia approaches a population of 30 million by 2030, housing shortages are likely to continue, contributing to upward pressure on property values.
A strong rental market
The rental market is experiencing significant growth. National rental values surged by 7.8 per cent in the year to July 2024, far exceeding the long-term trend of three per cent. This rapid increase is a result of limited rental supply and growing demand, fuelled by population growth. Current projections suggest it will take another two to three years for vacancy rates to return to a healthy range of two to three per cent. In the meantime, the combination of low vacancy rates and high yields will continue to drive rental demand and support property price growth.
Why now is a great time to invest
As inflation stabilises and the economy avoids a significant downturn, the RBA is likely to focus on returning the cash rate to a neutral level of around three per cent. This shift would represent a considerable improvement from the current rate, leading to more affordable borrowing costs. For investors, the current period offers a unique window to purchase properties at prices that reflect the higher interest rate environment, with the potential to benefit from future rate cuts and rising demand.
By acting now, investors can position themselves to capitalise on markets that are poised for continued growth once interest rates begin to decline, making it a strategic time to purchase an investment property.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au