Real Estate Investing in Australia: A Property Market Overview
We share a snapshot of the Australian property market in 2023, highlighting opportunities and challenges for real estate investors, including Specialist Disability Accommodation (SDA).
The 2022-25 Australian Housing Outlook, commissioned by QBE, projects that the current slowdown in the housing market will be widespread but will vary in severity among states and territories.
Sydney will likely be vulnerable to rising borrowing costs and could experience the most significant decline. The tightening of credit availability will have a drag effect on the residential market. As a result, borrowers are opting for fixed-rate home loans, which could limit their capacity to bid up property prices.
According to the report, the property cycle is expected to hit its lowest point in late 2023. Prices will recover after that as borrowing costs stabilise. While unit prices have experienced moderate growth over the last two years, they are predicted to decline less than house prices. As a result of this recent price disparity, unit prices are less exposed to affordability issues.
Finally, property investors are expected to be active in the real estate market, benefiting from strong rental yield growth, which is projected to be sustained by the return of overseas migration.
Interest rate forecast
The Reserve Bank of Australia (RBA) increased the cash rate to 3.60% in March, with no change for April. In their statement, they noted that inflation is starting to slow down and expect it to continue decreasing over the next couple of years.
They also mentioned there is uncertainty about when and how much households will slow down their spending in response to the recent rate increases. In their statement, it was noted “further tightening of monetary policy will be needed.” This suggests that they might not be as aggressive in raising rates as they previously hinted at, which could boost confidence and buying activity in the property market.
The rental market is exceptionally tight. As property prices are expected to fall in the coming year, the rental market is anticipated to become even tighter, particularly in inner-city areas where the supply of rentals may shrink. This could lead to higher rental costs involved for tenants (and higher rental income for investors). Supply chain issues and financial struggles within the construction sector also fuel Australia’s current rental market challenges.
Investors are often blamed for reducing the number of first-home buyers, but they could help to alleviate rental pressures by increasing the supply of rental properties. Alternatively, government grants and schemes could help renters transition to homeownership, reducing rental demand.
Supply and labour shortage
According to the RBA’s Statement on Monetary Policy – February 2023, although the latest liaison reports suggest a slight improvement in materials shortages and supply chain issues, the labour shortage is still a major constraint on activity. This limits the speed at which the work pipeline can be processed.
Opportunities for Real Estate Investment in Australia in 2023
Despite the challenges of rising interest rates and a slowdown in property development, there are still opportunities for property investment in Australia in 2023.
Specialist Disability Accommodation (SDA) properties
One opportunity for investment property in Australia in 2023 is NDIS Specialist Disability Accommodation properties, where high rental yields of between 10-15%pa are not uncommon from SDA dwellings.
Investing in Specialist Disability Accommodation (SDA) differs from investing in a traditional rental property because the income yield and capital growth potential won’t be affected by the same factors as traditional investment properties.
As the Australian government focuses on providing better accommodation options for people with disability, there is an increasing demand for SDA properties.
Affordable suburbs and regions
As borrowing capacities have decreased, pricing some buyers out of certain areas, affordable suburbs and regions have seen increased demand and steady or increased prices.
This trend looks set to continue, making affordable regions attractive areas for real estate investment.
Investors seeking affordable real estate options can leverage property data and analysis websites like Domain and realestate.com.au to identify regions experiencing increased demand and steady or increased prices as borrowing capacities decrease.
Property managers can also provide valuable insights into emerging trends and opportunities in different areas.
Commercial Real Estate
Investors looking to invest in commercial property in 2023 should consider taking advantage of market uncertainty.
Despite ongoing challenges in the commercial property market, such as the impact of COVID-19 and rising interest rates, there are still opportunities for investors. Consider properties in desirable locations with strong tenant demand and the potential for long-term capital growth.
Interested in learning more about investing in SDA properties? Reach out to our expert team today.