Five crucial events for investors to watch in a year of transition
The property landscape nationally has split in two, and a raft of major factors are set to determine just where that real estate market heads in 2025.
The real estate world is awash with predictions as to whether it is a good or bad time to invest hard-earned dollars in property.
But when we look back at past years, what we find is that it’s the key events that tell us more about how property performed.
For those wondering if 2025 is the year to invest, these key events are the most likely to shape the market’s fortunes.
Factor 1- Federal election
This year, Australians will head to the polls for a federal election.
In theory, elections aren’t supposed to bring much change to the market. But in practice, many people decide that extra bit of uncertainty is reason enough to procrastinate big decisions and wait for the outcomes.
This year’s decision could prove decisive. The Coalition’s promise to open up people’s super accounts for home deposits is up against the ALP’s slow but steady social housing build.
Past experience shows adding more buyers’ dollars to demand is likely to send housing prices higher.
Factor 2 - Will global uncertainty impact Australia?
The fundamentals of the supply and demand are always important. But the broader economy and whether it allows Australians to find work or make money from their businesses can be just as decisive.
Over the decades, Australia has benefitted greatly as an open trading economy, booking gains from the booms in China, Japan and other nations in Asia.
For the first time in years, that confidence has moved from certainty to a question mark.
China is still growing and buying lots of minerals from Australia, which helps the government’s budget (and therefore, all of us), but real problems with its economy have emerged.
Now, they face the uncertainties of the Trump factor.
It’s unlikely the worse will come to pass as the US, China and the rest of the world have more to gain from open trade than sky-high tariffs. But that doesn’t preclude some confrontations that could impact economic confidence and, with it, the Australian dollar and interest rates.
The China-America relationship is one for investors to watch.
Factor 3 – Supply of properties for sale
One of the most fundamental stories of 2024 was the contrast between the supply of properties listed for sale in different Australian cities.
Away from the big Sydney and Melbourne metros, it was a very tight market. As CoreLogic noted in August 2024, “The number of homes for sale in Brisbane, Adelaide and Perth is more than 30 per cent below average for this time of the year”, while in markets like Melbourne and Hobart, supply was well above average levels.
That changed in spring, with vendors in Perth, Adelaide and Darwin responding to higher prices and listing more properties for sale.
That pattern is following what happened earlier in the year in Sydney, which resulted in price growth cooling off. In Melbourne, supply is drifting back to its long term average.
This underlines the point that investors should keep an eye on movements in the volume of properties listed for sale, as the resulting supply-demand equation can prove crucial to price direction.
In 2025, the markets in which to look out for supply changes are southeast Queensland (for an increase), and Victoria and to a lesser extent NSW (for a possible decrease).
Factor 4 – Construction: will it bounce back?
Speaking of supply, another fundamental factor is the number of new homes being built in a nation with a fast growing population.
At the start of 2024, many governments made grand announcements of big building targets only to be humbled by falling construction starts through the middle of the year.
The latest numbers show that situation recovering somewhat, with residential building approvals up 3.2 per cent in November (year-on-year).
The biggest drivers were detached houses - national (3.8 per cent), and all dwellings in Queensland (23.4 per cent) and Western Australia (63.9 per cent).
Victoria remains the nation’s largest builder at around 4,600 dwellings per month while New South Wales has seen a solid increase in multi-unit approvals.
For investors, it’s important to note that housing construction often moves out of step with the established property market.
Boosts to building activity can follow sharp market upturns or due to government subsidies. But a sudden jump in land prices can negatively impact speculative builders and big rises in volumes of activity often translate into lower starts six or 12 months later.
Investors should see steady construction improvement as a good sign for the market in 2025.
They should also note that in the four largest states, a decade-long rise in multi-unit development is uncovering great opportunities for shrewd investors.
Factor 5 - Interest rates
If there is one factor which stands head and shoulders above the rest in determining what path real estate prices will take in 2025, it is interest rates.
In January 2025, analysts are telling us we are on a pathway to two cuts with the market pricing in a 74 per cent chance of a drop in February.
Let’s hope these predictions come true because as history confirms, interest rate changes can have an outsized impact.
Low rates saw the market soar in 2020/21 while sustained higher rates have seen growth pared back over the last 12 months.
Over the last 30 years, falling interest rates have been a fundamental factor in the rise of Australian property prices.
If the predicted interest rate falls happen this year and the employment situation remains broadly positive, I expect the second cut to function as a starting gun for the property market.
That will have a more pronounced impact on houses at and above the median price, especially in Melbourne, the Gold Coast and Brisbane, while for Sydney houses, the biggest impact will be just below and around the median price.
So, investors be prepared; 2025 could well prove to be a year of transition.