The Biggest Real Estate Trends for 2025 Investors Must Know

This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. Welcome everyone to another episode of the Property Nerds podcast.

I'm your co-host Arjun Paliwal, CEO of InvestorKit Buyers Agency, and I'm here with my other co-host, Jack from Fouracre Financial. Jack, how's the Australia Day weekend, mate? What did you get up to? Not much, mate. Just spending time with the family, trying to get some time off.

It's good to have a bit of a relaxing time. What about you? Is that your chill one? Yeah, yeah. With two kids under two, mate, you just want to relax.

What about yourself, mate? What are you up to? Mate, we had the trip to Darwin. So, random place for me to go to, but essentially one of the things my wife and I always do every year is we say, every year, because we got married on the Australia Day weekend, we'd say, we want to go to a different part of Australia that we've both never been to. And it just popped up as one of the things.

And there's a bit of a joke to why we go to Darwin too, because I'd say maybe like eight years ago, I was at CBA and I had this thought of like going, I want to move away from the head office back into the sales side of the role and leading teams and all that sort of stuff and move away from the researcher product role. And then I saw this opportunity come up in Darwin and it was an ANZ business banking manager role or something like that. And so I applied for it, but without my full heart, like I was just like, I chucked it in just for the sake of like, oh, we'll see where it goes. But I still wasn't like sure. So I didn't properly put everything like cover letters, thoughts, any detailed notes.

But it's just one of those moments we had when we're talking about Darwin to go, holy crap, what if it progressed and I decided to go for it? Where would I have been today? Like I would have been in a completely different spot. Look, I would have gone to Bali like 10 times over. That's for sure.

Being what, two hours away or less or something. But no, look, it was a crazy memory. But yeah, that's the Australia Day weekend for me. It's funny, man. I'm actually scarred from going to Darwin.

My dad, when he was in his early 20s, he got a work opportunity up there to go and be a labourer and he was just digging holes in the heat. And he said, you know, he just always said, never go there. But a long time ago, after watching that show Territory on Netflix, it's all about these farm owners in Northern Territory. I'm like, you know what? Might have to go up there soon.

Yeah, it's a good amount of land there, that's for sure. That's for sure. Well, mate, I know everyone's cracking into 2025. We're January down and people are wondering, like, what's the go for property this year? What are some of the trends?

And we've just put together a research report called The Seven Trends That Shape Australia's Property Market for 2025. And the cool thing about this particular report at InvestorKit is that this is the second edition. So we did one last year. And the thing with reports like this is it's all great to go, ooh, here's my crystal ball. Here's a bunch of trends.

And then, you know, you don't get pulled up on it because it's the first release. But this is the second release. So in this actual research, we go, hey, last year we said this. How much of that happened? What happened?

And yeah, we're just talking about macro trends of what went on for 2024, but also what's going to go on for 2025. So I thought in this podcast, me and you could crunch through a couple of them and just chat through, hmm, how many do we want to give away? Three, four, five? I reckon we'll talk about three of them, hey? We'll keep this podcast episode nice and tight today so we get three of them and give everyone an opportunity to go favorite this, download it.

And you can find it, by the way, for those listening in or watching in. That's on investikit. com. au. And it's the seven trends that shape Australia's property market in 2025.

So big shout out to the research team. Obviously, myself, head of research, Joong, our senior research analyst, Grace, our research analyst, and Anas, our data scientist. So yeah, excited to pull this one up. So what are your thoughts so far, mate, in terms of some of the trends you're seeing? And then I'll jump into a few of the things that we're seeing here as well.

Yeah, I think obviously with interest rates even just being talked about coming down, I'm starting to see a lot of people come out of the woodwork and that the sentiment is already changing. I mean, the rates haven't gone down, but just the talk of it, people are starting to come back and get ahead of it, which I think is a great idea. So I think that's definitely one to point out for this year for sure. Absolutely, mate. Well, good news is that's trend number one.

So shout that out. I didn't know that. You actually didn't, actually. So fun fact, he hasn't read the recent paper yet. We're going through it together.

But interest rates are set to decline, further boosting consumer sentiment. So that's the thing we had. And the key thing to point out here is that the economic data on all aspects has been trending down heavily, right? So we had our monthly CPI indicators and underlying inflation data points. Those two trends differ slightly.

That reached a peak of what, near 8% or just under? And that was around what, January of 2023. So that was when that peak reached and it's been free falling since. Now, yes, you'll look at different measurements and look at how it's going. But if you take that monthly CPI indicator, we're at about 2.

1% when we prepared this data set for the October ending release. So that's well in that range. If you're taking that underlying inflation indicator, it's at 3. 2, 3. 5%, depending on the data sets there.

However, both indicate a free fall and both indicate we're at that RBA range. So yeah, the thing is rates are coming down this year. There's no question about it, right? So what do you think is going to be more significant with the rates coming down? Do you think it's the sentiment or do you think it's the borrowing power coming back?

I think the sentiment plays a big impact, right? Me and you both see this. There are so many people sitting on the sidelines that probably can, but don't. And they're waiting for it. But really, it's like the borrowing capacity difference it makes is going to help others be in competition with them rather than help them because they already could.

So I think that's probably the first part. But I guess the main thing here is that it's clear there's two things changing. Interest rates are going to come down with inflation the way it's been coming down. But the second thing is there is a big spike in sentiment starting to come together. So we track the Westpac Melbourne Institute Consumer Sentiment Index trend.

And 2023, I'd say 2020, firstly COVID, the lows of since the sentiment track. It was like in the low 70s. So that's the lowest it's ever been. Then you'd go to 2023, interest rates start coming down. Let's say in 22, 23, then inflation and interest rate combination starts causing a huge impact here on sentiment and it completely falls off.

And in fact, funnily enough, the lowest rates, all the stimulus cash checks, everything going crazy, 2021 was the highest it's ever been, the sentiment index. Now it's roaring back. So we can see 23 end at 78 and going up to about 95 with the latest data. So it's trending back up. So this means even though rates haven't come down yet, people are thinking that they will and people are acting, starting to look at, starting to be and feel better.

And we all know there's three fundamentals of property, demand, supply and confidence. Confidence is sentiment. And that's a big one that's turning around. So yeah, it's going to be interesting times. But let me give you a couple of other things.

The bank's forecast. You know, our banks love to forecast. They don't get it right. I was just about to say that. Take it with a grain of salt.

Absolutely. CBA, next cut Feb. And they reckon it'll be down to 3. 35 by end of the year. It's currently 4.

1. Westpac reckons cuts in May alongside NAB and ANZ. And Westpac reckons 3. 35 by end of the year. NAB is interesting.

They go 3. 1 by June 2026. And ANZ reckons 3. 85. So we're talking about half a percent up to 1.

4% drop in cash rates, depending on which forecast you take, is the estimates here. So that's kind of what we're seeing in terms of trend one. And the main thing is we're going to see finance commitment data start to change as well. So that's trend one, mate. Do you think that's just a coincidence that when the rates are coming down and the sentiment's talking about coming back, that's coinciding with a potential Sydney and Melbourne boom?

Good question. Is that just a coincidence? Because people would say that high The 12% for 750k to a mil. So what you can do looking at that is you can basically look at this and go, well, opportunity or boom time still continuing. Well, as long as the cost of money remains as expensive and the fundamentals of those affordable markets are that undersupplied, the affordable markets are going to kill it again in 2025 and they're going to continue strong.

And that seems to be the case because the pressure in Australia is the highest across Queensland, SA and WA and they happen to be the most affordable markets in the States. But for those who are trying to go, well, what is the other side of this interest rate decline look like? What is the other side of improving fundamentals? What is the other side of like core tiles coming too close together? Like the 500k market here and million dollar market here and it becomes here, it catches up to it.

Well, that represents opportunity because if a market in that 750k to a mil price point hasn't grown much over the last few years, that's a buyer's market, that's an opportunity. So that's kind of what we're seeing on trend number two. Are you seeing on the finance front, like also when people are coming for multiple purchases just because they're in this interest rate environment, like that third or fourth purchase can't be that million dollar loan or 800k loan? Are you seeing that too? Yeah, 100%, man.

Like borrowing capacity is what stops most people for sure. Yeah. So yeah, that's why a lot of people start looking into SMSF and trust. But yeah, to try and get a million dollar property for your third or fourth, you'll be on some pretty good income, that's for sure. Yeah, I think that's another reason, right?

Because the borrowing stuck where it's stuck, like people who are active investors are kind of going, well, yeah, I'd like to purchase a bigger price property, but just can't. And so it's almost this forced demand into that area because people just can't, right? So that's trend number two. So that's the affordable areas that are likely to pick up a lot. And I think that's going to be another year worth of that because even the interest rate declines that are due to happen, they weren't all coming at once.

They won't all make immediate impact at once. But I think the affordable markets are still likely to grow to that next level. So that's trend number two. I might jump into one more trend here, Jack. And this is an interesting one so that people aren't actually realizing still exists.

Supply, trend number five. So supply shortages will remain the primary driver of price growth. Now, when it comes to supply, the thing that people make the mistake of is they think supply is new build housing, right? I made that mistake to a couple of podcasts ago. There you go.

You educated me. It's a good point. So people think supply is new build housing. Supply is a combination of it all. It's how many established listings are for sale.

And that shows you how many of the main property pool is for sale. The second thing is how many listings are for sale in comparison to how many sales occur each month. That's now net supply of demand. Then it's how much construction is occurring. Then it's how much rental supply is occurring.

And then not also how much is listed, but how much is listed in comparison to the proportion of properties in the area. Because it might be 500 listings in that suburb might be scary. But what if the suburb is like 20,000 houses? There might not be as much as people think. Or what if it's 500 listings, but only 100 sales occur?

That's a lot. What if it's 500 listings and 300 sales occur and it's tight? So I think the key thing is to look at supply in all of these ways possible, right? Now, when it comes to supply markets, I think the key thing to recognize here is that the supply levels in Australia are still substantially below. To give you some context here, in 2019, the houses listed for sale were approximately 264,000 established.

Whereas today, in November 2024 or December 2024, the last time that we checked this data, it was 203,500. So we're still having a 23% decline in supply, whilst we all know what's happened to population over that time, right? It's been going up. And so I guess the major thing to think about is that until that number changes, in some areas that's changed, it's not going to be suddenly the price declines everywhere. And to give you some examples of where it's the most prominent, like Perth, Adelaide, probably the two tightest capital cities.

And then you have a trek down regional Queensland, regional SA, regional WA, again, very tight. So that represents sellers markets, growth rates are going to be high. But that's what we're seeing on the supply front. I mean, what have you noticed on some of the supply fronts from some of your clients? How does it impact their buying times, like time it takes them to find stuff, pre-approval, renewing them?

What have you noticed around this sort of like few years or a bit of... Yeah, I don't know if pre-approvals, you know, some expire, some don't. But what I wanted to ask you as well, do you think for the established supply, do you think the way that you solve that is to get rid of stamp duty and capital gains? Is that the two main things or is there anything else? Big difference.

That's going to make a huge difference. Yeah, for sure. So what happens is... It will never happen. It'll never happen.

If we had some long-term focus leaders, like it will happen, but that's the problem, right? Everything's a four-year cycle. Everyone's get in, get out. Everyone's trying to get to that next job or next this. And yeah, look, stock mobility is a killer.

It makes sense. It makes sense. It's massive, right? If you go, I've got 4% to 5% on the way in to make up. That's already one year of growth and long-term averages just to break even, not including any sales costs.

Then you've got sales costs that adds in another 2% to 3%, including lawyers, pest and building. So you're probably about like almost 1. 5 to 2 years just to get the break even on your money with normal growth rates. And then you tell yourself, well, I haven't even started to think of tax yet. You've actually made no money.

So I would say there's also no flippers now. The flippers don't want to flip as quick because they're looking at that. So you'll just have way more mobility. And also just if you have less friction in decision-making, less calculations to make, you make a decision. It's mindset and it's also like mobility.

Big difference makers. Yeah. The capital gains tax seems to be the one that people cling to the most, but then they don't realize that when you get back in, you've got to pay stamp duty, which is huge. Some people just, they go, what? 50,000 in stamp duty or 100,000 in stamp duty.

And then some people are paying hundreds of thousands of dollars in capital gains tax. It's unreal. Yeah. Yeah. It's massive, man.

And at least it's going to a good cause, right? Yeah. Yeah. It's not. I'm just joking.

Yeah. Great cause. Great cause. Absolutely. But I think like those changes, they make a big difference, but like they don't make a forever difference.

What I mean by that is like they will normalize eventually. Prices will meet that mobility because I always look across the ditch in New Zealand, right? In New Zealand, they don't have stamp duty, if I'm not mistaken. And I believe they don't also have capital gains tax. And there's still pretty undersupplied.

And in some areas, price declines have been happening. Economy's been weak. Interest rates are now free falling there. So I get it. It's not been a good market in recent times.

But if you look at those 10-year averages, growth rates have been massive. And they've not had those like constrictions of supply in that. So I feel like once it makes up a certain price point, people might hold on to things again, or it might be tougher to get into and buy. So I feel like that's definitely one thing. But I also feel like something that's not talked about often, and I know it's a hard topic to talk about because it's such a big change.

It's like Australia's population isn't as evenly spread, right? We have some of the most dense across a few major cities. And because of that lack of distribution, there could be better opportunity for improved transport, improved distribution. And then as a result, when you're doing supply, right now when the towers come up or when certain house projects come up, they're only coming up into a few select cities and a few select hubs. They don't have that ability to go all over the place and create some more affordable supply in some areas.

I know new build doesn't solve it all. It's established supplies where it's at. But yeah, the mobility will help. The distribution of our population all over the place will help better. The planning system to match what we have in some of our major cities across some of our other cities will help.

Now, I don't know how some of the people in smaller cities will feel about that, but the truth is it will help because that is where cheaper housing is sitting. And as a result, when jobs start spreading across the country as well, people then consider their work, their family, their play, all that sort of stuff happens. And people aren't competing for the same stock or the same product and people have more desire to move, right?