Property downturn holds hidden opportunity for investors

InvestorKit senior research analyst Junge Ma said that investors focusing solely on headline figures were missing out on market opportunities.

She said that to better understand the market and make better purchase decisions, investors should look into microeconomic factors.

“The softer national picture is primarily the result of weakened sentiment and a handful of key fundamentals placing a disproportionate drag on overall market conditions, not a broad-based deterioration in Australia’s housing fundamentals,” Ma said.

“For investors, the key takeaway is to look beyond the macroeconomic headlines and identify local markets where strong fundamentals continue to create attractive investment opportunities.”

According to InvestorKit’s data, the majority of the fundamentals that drive housing demand, including people movement, economic activity, and supply, remained strong.

The report found that, of 25 key metrics, 16 were considered strong, including listing numbers, population growth, and household income.

Among the remaining key metrics, affordability and confidence remained weak pillars of the housing market, with higher interest rates, negative media coverage, and subdued consumer sentiment continuing to weigh on fundamentals.

Ma said that of the nine fundamentals rated weak, almost all were linked to the Reserve Bank of Australia’s (RBA) cash rate movements or the Federal government’s tax reforms.

InvestorKit’s analysis found that, in addition to the cash rate itself, the RBA’s decisions had caused a 15–25 per cent drop in borrowing capacity.

Additionally, affordability was rated weak across the board, with 47 per cent of SA3 regions considered affordable for rentals, dropping down to just 17 per cent for mortgages, with a price-to-income ratio of 8.3.

Beyond market data, the analysis found that consumer sentiment remained significantly below the long-term average, while government intervention and negative media also harmed confidence in the nation's property sector.

“As the market adapts to the new tax environment and the RBA cash rate comes down in the coming year, many of these fundamentals will respond and move further towards the strong end,” she said.

Performance split across the capitals

While averages indicated declining property values, the drop was not broad-based, with mid-sized capitals significantly outperforming national figures.

Greater Darwin was rated the fastest-growing capital in the country, with strong sales market pressure driving an 18.4 per cent jump in house price growth.

Similarly, Perth grew by 16.1 per cent over the year, while Hobart became the second fastest-growing capital city over the past quarter.

With consumer sentiment softening across the property market, Ma said there was an opportunity for buyers to secure strong purchases while others waited.

“Consumers have also become less optimistic about future house price growth, with housing price expectations falling to a three-year low,” she said.

“This represents a great buying window for those who prefer to avoid competing with FOMO-driven buyers.”

Additionally, Ma said a national infrastructure pipeline of more than $1.1 trillion over the next five years should reassure investors who were currently spooked by short-term headlines.

“Persistent housing undersupply is expected to continue supporting price growth over the medium to long term, although elevated interest rates and subdued confidence are likely to moderate the pace of growth in the near future.”

“History has consistently shown that investors who remain focused on long-term fundamentals rather than short-term sentiment are best positioned to build long-term wealth.”

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Tags:

• Property market
• investor strategy
• downturn

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