Property Market Beckons Nervous Share Investors

As turbulence shakes global share markets, Australia’s residential property sector is pulling in cautious investors seeking stability, but that shift might squeeze rental yields and flood the market with stock.

Investment activity in housing has started climbing again, off the back of tumbling share prices and growing expectations of interest rate cuts. With lending to property investors rising at its quickest rate since 2022 and home prices showing consecutive monthly gains, property is once again looking like a safer bet. At the heart of this switch is a belief that lower interest rates will make borrowing cheaper and returns on bricks and mortar more appealing.

Right now, residential property values are steadily rising across most regions. After a sluggish 2023, prices climbed nationwide in both February and March, and investor credit hit $768 billion by the end of that period, a 5.6% lift over the previous year. At the same time, interest rates are forecast to ease down from 4.1% to 3.6% by year-end, putting mortgage rates near 5%. This environment is making home loans more affordable while boosting projected returns on housing investments.

However, some investors may hesitate despite the positive signs. A surge of available properties is creating more choice for buyers, reducing urgency and slowing down bids. While the market is posting consistent gains, up 3.4% over the last 12 months, rental yields remain moderate, particularly in expensive cities. Rents have also slowed noticeably, rising just 4.8% over the last year compared to over 8% the year before, indicating that the tight rental market may be easing.

This trend underscores a broader pivot from riskier shares to the traditionally defensive property market. But despite the momentum, it’s still unclear if this investor shift will stick. The last major surge in residential activity during falling share markets occurred during the early stages of the pandemic and was largely driven by homebuyers, not landlords.

Source: The Australian, Investor Kit, KPMG, Core Logic