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Should you invest in property in 2026? With higher interest rates, changes to taxes and SMSF, many investors are asking whether property is still worth it. Wagga Wagga's job market is also very active. Unemployment rate now is just 3. 6%.
In the sales market, inventory levels have been declining. It's understandable that many investors are thinking to pause and wait for a better time to start. But history and data both told us that compounding is one of the most powerful features of property investment. I'm Junge Ma, the senior research analyst here at InvestorKit. Should you invest in property in 2026?
With higher interest rates, changes to taxes and SMSF, many investors are asking whether property is still worth it. In this episode, I'll explain why I still believe property can be a great investment in 2026, and more importantly, what types of markets are best positioned to perform in this new environment. I'll also walk you through three regional markets that are displaying the characteristics we believe investors should be looking for right now. In 2026, we property investors are facing a lot of headwinds, including the high interest rates, the negative gearing changes, the CGT discount changes, and now the SMSF changes. It's understandable that many investors are thinking to pause and wait for a better time to start.
But history and data both told us that compounding is one of the most powerful features of property investment. And usually, time in the market would give you an overall larger return or better return than timing the market. Therefore, I still believe that it is a good idea to start as soon as you are ready without waiting for any better timing. But it doesn't mean that you can or you should rush into any market expecting the same amount of outcome. Now that the environment has changed, we as property investors should be more strategic as well.
So now in this episode, I'm going to show you three markets that are already growing well, showing strong signals, and are expected to continue performing in the coming year. First market is Wagga Wagga. It's a representative of many inland regional New South Wales cities. It has a population of 99,000, making it actually the largest inland city in New South Wales. It enjoys a very balanced industry structure.
The top five employment industries are healthcare, public administration and safety, education, and retail trade. Wagga Wagga's job market is also very active. Unemployment rate now is just 3. 6%. It has increased a bit over the past year, but it is still well below the national average, the state average, or its own last 10-year average.
The balanced industry structure and the active job market is making sure that housing demand in Wagga Wagga isn't just from one cohort of buyers. It has a balance between investors and owner-occupiers, with only 33% of its total dwellings being rental properties. And that is very much in line with Australia's average. Prices are quite affordable now, with median house price being $640,000. And it is not just affordable to investors from bigger cities such as Sydney or Canberra or Melbourne.
It's actually also affordable relative to the local residents' income levels. Based on our overvalued or undervalued calculation, Wagga's median house price is just 2% overvalued compared to the local average household income. That is essentially very comfortable for local households to buy a house right now. Wagga's house prices have increased by 12% in the past year already, and it is still speeding up. Because of the supply shortage in both the sales market and the rental market.
In the sales market, inventory levels have been declining in the past one year and a half, now sitting at just 2. 5 months of stock, well below the balanced level and still showing a downward trend. Together with inventory decline, we also see days on market declining fast, down by 27% in a year. And in the rental market, vacancy rates is staying low. Currently, it is at 0.
8%, slightly increasing. But as long as there is not a large amount of new houses transformed into rental properties coming to the market, it is unlikely that the vacancy rate will be surging fast to a dangerous level. And talking about incoming supply, we do not see that large amount of new houses coming anytime soon. Because for now, the new house building approval rate is just 1. 4%.
That is quite a balanced level and also lower than Wagga's previous long-term average when it comes to new supply levels. Now, on holding conditions, when interest rates are high, when negative gearing is not offering immediate benefits, naturally we put more emphasis on cash flow conditions. And in Wagga Wagga, the rental yield now is around 4. 7%. Nationwide, that is a quite healthy level.
Not necessarily generating positive cash flow already, but with a healthy rental growth and potential rate cuts in the coming years, cash flow conditions expected to improve quickly in the near future. Now, second city, Ballarat, a major regional hub around one hour and a half drive west of Melbourne. It has a population of 116,000. And just like Wagga, Ballarat is also benefiting from a balanced industry structure with healthcare, education, construction, manufacturing, and retail trade as the major employment industries. Job market is active with an unemployment rate of 4.
1%. And investor participation is also quite balanced. 31% of total dwellings are rental properties. That is also very much in line with the national level, making sure that the housing demand is not just from one single buyer type, for example, investor. Ballarat's house prices are also quite affordable to both homebuyers and investors.
The house median price now is $585,000, 7% undervalued compared to the local average household income. One of the reasons why Ballarat is so affordable now is actually because the prices didn't grow much from 2023 to 2025. That was partially because of an oversupply issue back in 2023. Ballarat experienced a large boom in new housing construction in the past decade. A lot of new houses came to the market during the pandemic and immediately after.
That's why when interest rates went higher and demand softened, price was hit harder in Ballarat compared to many other supply-constrained markets. But now what we are seeing is the excess supply has been absorbed by recent demand growth in both the sales market and the rental market. And what we are seeing now is that one, new house building activities have significantly slowed down. Building approval rates have came down from close to 6% to the current 2. 5%.
And established supply in both the sales market and the rental market are both declining fast. In the sales market, inventory has been declining for the past two years, now sitting at 2. 2 months of stock, even tighter than Wagga Wagga. And in the rental market, vacancy rates has dropped to around 0. 5%, again, a very tight rental market.
Rental yield may seem lower than Wagga Wagga, but again, as rental supply is so tight, we expect further rental growth to improve holding conditions for current investors and homeowners. We expect the rental growth in the coming years to improve current investors' cash flow and holding conditions over time. Third city, Launceston. It has a population of 87,000, slightly smaller than the other two, but it's already the second largest city in Tasmania. The local economy is also balanced with an active job market.
Unemployment rate is now 4. 3%. 32% of the total dwellings are rental properties, so we are seeing a good mix, a balanced mix of demand from both owner-occupiers and investors. Launceston's attractiveness, affordability is also good in Launceston, with the median house price being $635,000, just 4% overvalued compared to the local household income levels. With Launceston or in general Tasmanian cities, one interesting thing is now the growth driver has changed.
In 2016 to 2022, all Tasmanian cities have experienced a big price boom. That was primarily driven by population growth or high housing demand. But now population growth is not actually strong in Tasmania. But now population growth is actually relatively weak in Tasmania. So what is driving the growth now is not demand.
Instead, it's tight supply or supply shortage. We do see that in both the sales markets and the rental markets. In sales markets, taking Launceston as an example, inventory now is just 1. 7 months of stock. It's one of the lowest across the nation.
And in rental markets, vacancy rates is 0. 3%, again, one of the lowest across the country. So in the near term, supply shortage is actually one of the major drivers for Launceston's growth or in general Tasmania's growth. But in the medium term to long term, we still have confidence in Tasmania because we are seeing a lot of infrastructure investments happening across the state, including in Launceston. That economic improvement, that infrastructure improvements are one of the signals that the economies are improving, strengthening over time and creating more jobs, improving the overall livability of the region or the state to attract more population and housing demand back to the state and sustain the long term growth.
Holding condition wise, Launceston is actually quite healthy with a rental yield of 4. 7%, making it one of the most favorable regional cities to hold an investment property in. After looking at all three of them, it's actually easy to see some of the common features across all resilient cities. One, they all have a resilient economy with reasonable population growth and reasonable population size, balanced industry structure and active job markets. And then they all have a balance between owner-occupier demand and investor demand.
Three, they all have a relative affordability compared to the local residents or local households income levels.
