The Australian state attracting savvy investors is not where you think
Property investors are targeting cheaper markets for capital growth and positive gearing
3 min
More property investors are seeking to buy in cheaper capital city markets amid high interest rates and inflationary pressures on holding costs such as insurance, repairs, utilities and strata levies. This is a key finding of Australian Property Investor (API) magazine’s Q1 2024 Sentiment Report, which canvassed the views of more than 600 Australians over the first three weeks of April.
The report also found that just three states are dominating investors’ interest, with 75 percent of survey respondents squarely focused on Queensland, Western Australia and New South Wales, which they say offer the best prospects for capital growth. Queensland is the favoured market, followed by Western Australia, which is soaring in popularity. Interest in Western Australia has doubled with 25 percent of respondents identifying it as the best growth market in 2024.
“Perth is not showing any signs of a slowdown, with population growth, housing supply shortages and high rents driving the capital growth,” said Julie Kelley, Global Sales and Marketing Manager ataussieproperty.com.
“The east coast investor contingent is also hungrily purchasing property at rates we haven’t seen since the mining boom of the 2000s. Buyers recognise Perth is extremely affordable, offers high rental yields, sub-1 percent vacancy rates, has a strong economy, and the fastest housing value growth nationally.”
While Queensland and Western Australia offer relative affordability, investors remain interested in Australia’s most expensive market, New South Wales. It appears Sydney’s ongoing price growth is attracting wealthier investors who have the capacity to pay the highest median house and apartment prices in the country.
Interest rates, access to finance, affordability and rental yields are the four key elements influencing investors’ decisions this year, and likely contributing to the popularity of Queensland and Western Australia. With rents racing higher around the country, there is an opportunity in cheaper markets to purchase properties that are not only rising in value but are positively geared. This means the landlord receives rental income exceeding the costs of holding the property.
Meantime, it seems Victoria has lost its appeal among investors due to weak capital growth over the past year and a perception that government policy is weighted against landlords. Victoria has introduced higher land taxes, enhanced tenants’ rights, and is now considering new minimum energy efficiency standards which may require costly upgrades to insulation and appliances.
Mike Mortlock, Managing Director of MCG Quantity Surveyors, said based on investment loan data, Victoria was likely to lose more than a net 5,000 rental properties (or 1 percent of the state’s rental stock) over the next 12 months as investors sell up and new buyers look elsewhere.
“Landlords are increasingly cautious about entering the Victorian market,” Mr Mortlock said. “It’s not just about those who are leaving. Many potential investors are now avoiding Victoria altogether, seeking opportunities in other states with more favourable conditions.”
Despite high interest rates and inflation making investment holding costs such as insurance, strata levies and repairs higher, more than one in five survey respondents intend to buy an investment property over the next 12 months. This was the most popular investment goal at 22 percent, followed by positioning for retirement at 18 percent, reducing loan debts at 14 percent and benefitting from capital growth and passive income at 8 percent.
High interest rates remain the primary concern of investors. More than half of respondents said a single 25-basis point rate rise would alter their buying and selling intentions.
API says affordability constraints have driven more people to the unit market than ever before. However, 39 percent of survey respondents say they are targeting houses for investments, with 23 percent targeting units and 18 percent seeking to buy a townhouse. Investors are also preferring capital cities to regional areas, even though the regions are outperforming over the year to date.
It appears investors are thinking more strategically over the long term, given their preference for houses in capital cities. Houses typically record higher capital growth than apartments over the long term because of their land value, and capital cities tend to outperform over the long term, too.
More than eight in 10 respondents believe property prices overall will continue to increase. CoreLogic Research Director Tim Lawless says more price rises in most markets are likely due to a lack of stock for sale to meet the strong demand.
“Inventory levels in these markets remain well below average despite vendor activity lifting relative to this time last year,” he said. “Fresh listings are being absorbed rapidly by market demand, keeping stock levels low and upwards pressure on prices.”
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3 min
Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.
Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.
Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.
“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.
“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”
Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.
Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.
“In the absence of stock, demand exceeds supply,” he said.
Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.
He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.
“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.
“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”
Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.
He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.
McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.
While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.
“People are looking for value for money,” she said.
She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.
“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.
The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.
“The viability of a development happens at the moment the site is bought,” he said.
He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.
While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.
“It is actually a business that requires a level of expertise,” he said.
Looking ahead, the panel agreed opportunities remained in the market despite current challenges.
Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.
McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.
Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.
“We can provide affordable housing in this country,” he said.
“But we’ve got to wrap that affordable housing with the things that people want.”
As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.
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