Why Property Prices Will Continue to Grow in 2025

What will the future hold for the Australian property market as we approach 2025? Join me, Casey Taylor, on the Taylored Property Wealth Podcast, where we unravel the intricacies of the current supply and demand imbalance that could make or break property price trends. With 3,000 construction companies collapsing in 2024, a significant dent in housing supply is imminent, leaving the government's ambitious targets unmet. We'll dissect how this crisis, coupled with soaring migration figures, is expected to fuel scarcity in areas with strict building approvals, thereby driving up property values, tightening vacancy rates, and boosting rental incomes.

Tune in to understand why now might be the right moment to invest, as we anticipate interest rate reductions between February and May 2025, according to forecasts by top banks like ANZ and CBA. This anticipated drop promises to enhance borrowing capacities, potentially sparking a surge in property prices. Whether you're an investor or a homeowner, we’ll guide you through selecting prime locations poised for growth amidst these dynamic market changes. This episode is your essential guide to navigating the challenges and opportunities in the Australian property landscape for 2025 and beyond.

Transcript

Speaker 1: 0:00

why property prices will continue to grow in 2025. In this episode of the podcast, we're going to be breaking down some of the metrics that we're looking at to understand and have the confidence that property prices are going to continue to grow in 2025. We're going to be breaking down some of the data and showcasing why we fundamentally have a supply and demand issue. We're going to be talking about the issues with the construction industry that ultimately will affect the properties being built. We'll be talking about the migration coming into the country. We'll be talking about the expected rate reductions in 2025. We'll be talking about the increase in lending activity over the last 12 months. We'll be talking about the Australian residential real estate values and the debt that Australia is currently holding. If you want to dive deep into the data on the Australian property market in 2025, this is the episode for you to watch. Welcome back to another episode of the Tailored Property Wealth Podcast. My name is Casey Taylor, I'm the host of the podcast and in today's episode, we're going to be talking about a lot of the data points and a lot of factors as to why property prices are going to rise in 2025. There's going to be a lot of data, a lot of metrics that we look at and it will really highlight and showcase why price growth will continue. It's going to give you confidence as an investor or an owner-occupied purchaser to go out there and purchase property in the right locations and it's going to get that performance in 2025 and beyond. It's a really exciting time in 2025 to be investing in property. There's going to be some really solid years of growth and this data will showcase and support why we believe that's going to occur.

Speaker 1: 1:54

So let's get into the episode. Let's not delay any longer. So fundamentally and I've spoken about this in many other podcasts we have a supply and demand issue in this country. Okay, so we'll get to that in a moment. Some of the data points that relate to this issue is we have record numbers of builders going into administration numbers of builders going into administration. So, as per ASIC, they confirmed that 3,000 businesses collapsed in 2024 in the construction industry. So we now have 3,000 less businesses that can positively influence adding more supply to the Australian market. And then, when we look at the federal government's target of that 240 homes per year over the next five years that's going to influence that and they're already well behind targets for that They've never hit those targets in the past and 3,000 less businesses in the construction industry in 2024 is negatively going to continue to impact on that. So if we don't have that supply keeping up with the demand that we're about to touch on, fundamentally that's going to continue to create scarcity and put that pressure on price growth, especially if you're getting in those established areas where there is limited building approvals, limited land available to build more homes. That established land is just going to continue to become more scarce over time and put that pressure on that growth.

Speaker 1: 3:39

So the ABS recorded overseas migration for 2022-23. It was a net annual gain of 536,000 people. Abs migration for 23, 24,. The net gain was 446,000 and that was above that target of 395,000. So over the last few years we've had massive amount of people coming into the country putting pressure on that, both the value of property and also vacancy rates and rental income growth, which we'll actually touch on as well. Listing levels Listing levels are still below the five-year averages in some of those marketplaces Brisbane, adelaide, perth they have actually increased a little bit in the second half of last year, which is great, just balances that market out a little bit more, but they're still below those five-year averages just balances that market out a little bit more, but they're still below those five-year averages.

Speaker 1: 4:39

We've got rates expected to drop roughly let's call it half a percent, and it's actually factored into the market if we're looking at those fixed rates and actually just last week I believe it was ANZ have now come out and predicted that we're going to see first rate drop in February and that's in line with CBA's prediction. So two of the big banks predicting Feb now and then the others are predicting May. So between Feb and May is when that prediction is going to take place. And what will take place once rates reduce is one people are going to have more borrowing capacity. So one they can continue to push prices higher because they can afford more. Number two is there's currently people that can't afford, but with maybe one or two rate cuts their borrowing capacity is going to increase. They're going to be able to do something again and that just means more of the herd are going to come back to the marketplace. They're going to be able to do something again and that just means more of the herd are going to come back to the marketplace. They're going to put pressure on the marketplace and it's going to continue to grow and we'll touch on the lending and it's already dramatically higher than it was 12 months ago. So, as we see those rates reduce as well, it's going to continue and continue again. So it's something important to note and there's just going to simply be those people who have portfolios and holding debt and they'll be able to purchase again with those rate cuts as borrowing capacity increases. So it's just a great opportunity in that first half of 2025 if you can get in before a lot of the herd and within our business, our inquiry levels late last year really starting to ramp up and they're just off their head in in january because people are understanding what's coming. Um, and it will just take another notch up once we see that rate reduction actually take place.

Speaker 1: 6:38

As per the ABS, investor lending is up 29.5% and owner occupied is up 13.1%. So a substantial lift both for owner occupied and investors, but a 30% increase for investors is massive and investors, but a 30% increase for investors is massive. We had that negativity in the marketplace a couple of years ago as rates were increasing. Cash flow was affected for those investors. But what happens is, as human beings, we do adapt to change. We reign in our discretionary spending and we continue to take action. So 30% increase. What's going to happen? With a couple of rate cuts it's going to really heat up in that pressure cooker for growth as I always talk about.

Speaker 1: 7:26

The RBA predicts that the demand for additional dwellings is actually going to increase 120,000. And that is because the household average, so the number of people living in a home, is 2.6% and it's dropped to 2.5. So just that tiny reduction holistically across Australia means 120 new dwellings. Now if we look back to the, the construction industry collapsing and the migration we have coming into the country and building approvals not keeping up, and then we've got that on top of that and we need more dwellings that demand is just increasing again. Yet our supply is just not going to keep up that pressure cooker for growth.

Speaker 1: 8:25

People don't understand that one. I don't think, just simply from that point of view, that average household decreasing and there's so many different factors as to why and that's again contributing to the vacancy rates as well, having that negative impact because vacancy rates are at all-time lows, which we will touch on now. So we've got historic low vacancy rates and that is putting pressure on rental income growth. Now, as per SQM. I've just done a couple of the majors that we kind of are looking at at the moment. But rental income growth over the last 12 months and this is as today Brisbane is up 17.1% over the last 12 months for houses, adelaide up 13.3% for houses and Perth up 19.6% for houses. So massive growth, well over 10% growth.

Speaker 1: 9:31

And this is what people do not understand that are sitting on the fence saying I don't want an additional 10K of holding costs per year. But the reality is if people got in 12 months ago, they're borrowing far less for that property. Their gross yield at the time was higher than it is today, meaning it actually positively influences your holding cost getting into the market sooner. But then you're getting that rental income growth as well. Over time, rental income growth increases and you're either one holding that same amount of debt with interest only lending, or, if you're principal and interest, you're now starting to pay some of that debt down. But your rental income increases over time and that's where we get that passive income.

Speaker 1: 10:17

Properties get to a neutrally geared position over time and then down the track, become positively geared. So something super, super important to remember and then down the track, become positively good. So something super, super important to remember People who have sat on the fence for 12, 24 months. The gross yield that they're now getting is lower. So, yes, you might wait for a rate cut, but you're not going to be any better off with a let's call it a 0.25% rate reduction, because you could have just purchased two years ago and the gross yield was higher. So, and you're borrowing less money which you have to pay off over a 30-year period.

Speaker 1: 11:01

Now another important one to really understand, and this is those doom and gloomers who are talking about property prices are going to crash. Wait for it. Property prices can't continue to rise this and that and the other. If you understand that the Australian residential real estate market, as per CoreLogic in November 2024, is valued at $11.1 trillion. Now, on the flip side of that, the outstanding mortgages in Australia is $2.3 trillion. Now, $2.3 trillion sounds scary, but as an LVR percentage on that $11.1 trillion, the Australian LVR is 21%, extremely low, especially when, if you go out and get lending, the banks deem you high risk at anything over 80%, so virtually 60% under that, I guess, risk factor mark. It's very positive that we are not over leveraged as a country as a whole, so that one is super, super important to remember. And then, if property prices ever do start to correct because property prices are at $11.1 trillion and the Australian economy relies on Australian residential real estate so much they will always intervene to make sure property prices don't crash 40%. They didn't crash in the GFC by 40%, 10%, 15%. That crash isn't a crash, that's a correction. It's going to happen.

Speaker 1: 12:48

If you're holding property for a 10, 15, 20 year period, you will go through a correction. Prices can't just go up and up and up and up and that's why we diversify into different marketplaces so we're always getting that growth while another marketplace might underperform for a short period of time. We must understand that they will always intervene. There's different levers that they can pull to positively sway the marketplace, but we simply won't have a correction by that amount. If you truly understand that, it's a game changer, it's super important and as a sophisticated investor, we just build that into our growth of the portfolio and understand okay, well, this marketplace might not do that great for a period of time. So let's diversify into this marketplace, let's get some valuation strategically at the right point in time so we can value those higher, and then, if prices do correct for a period of time, it doesn't matter because on paper, with the lender, we've already proactively sought out and got that valuation a little bit higher.

Speaker 1: 14:00

Unemployment figures in the australian economy. So, as per the abs, in gen 2025 noted that the unemployment rate remained at 3.9%, so still pretty low. Consumer price index rose 2.3% for the 12 months to November 24. So it's in range. It's a little bit higher than the previous month, but it's starting to get under control. It's not range, it's a little bit higher than the previous month, but it's starting to get under control. It's not those crazy figures and that's why now 2025, we're starting to see just in the fixed rates and different bits and pieces, it's starting to get priced in for a couple of cuts. We've got some other countries that have already reduced rates as well, so you can see that it's just around the corner. It's not a matter of if rates are going to reduce, it's just a matter of when. No one's got a crystal ball the RBA still don't know, but it's going to come soon.

Speaker 1: 15:03

That is a lot of the data that, if you understand, is going to really positively influence going out there and purchasing and getting that price growth in 2025 and beyond. Supply and demand is super crucial to understand each suburb what they're going to do. But you can look at a lot of this data and go out and select those areas that have that pressure in them, that pressure cooker for growth, because we know they're going to continue to perform. It's exciting, like I said, in 2025 to invest and purchase property. If you don't, and you sit on your hands like people have done for the last two years, you will have to go out and borrow more for the same asset. You're going to have lower gross yields and then, over 30 years, you might need to pay off another 20% of what you could have avoided two years ago.

Speaker 1: 16:05

Getting in and taking action years ago, getting in and taking action that's the episode why property prices will continue to grow in 2025. I hope you enjoyed the data. I love looking at the data because, as an investor, it gives you the confidence to go out there and take action. If there's something you want to see this year, please reach out, let us know and we will make sure we get onto that as a subject for a future episode. Thanks for listening, guys. Hope you have a great week and see you on the next one.