With attractive yields and strong capital growth, investing in real estate remains a popular strategy for building wealth.
Latest figures from CoreLogic show new investor loans are currently outpacing the volume of investment properties being listed for sale, meaning there are more people in this market buying than selling. At the same time, high interest rates, tenancy reforms, and increased property taxes are having an impact as some investors look to exit or downsize their number of assets due to rising costs of living.
Let’s take a closer look at what is happening heading into 2025.
1. Investor Sentiment
Data from the Australian Bureau of Statistics shows investment loans have increased nearly 30 per cent in the 12 months ending in September 2024, indicating strong market demand.
LJ Hooker Home Loans Head of Product and Marketing, Jeff Chapman, said the past nine months have been particularly busy, with mature investors looking to add a third or fourth property to their portfolio. There has been some softening towards the end of the year.
“The way SMSFs are assessed by the banks means they are not as impacted by affordability issues because it is not based on their personal income and expenses, it is more about how the fund is set up. For a lot of people, this helps them to multiply the number of properties in their portfolios through their superfund.”
LJ Hooker Group’s Head of Research, Mathew Tiller, said Mum and Dad investors are well placed to purchase an investment property thanks to increased home equity from recent years of strong property price growth.
There has also been an increase in wealthy investors looking for future proof by purchasing real estate for their children.
“Sydney is becoming more unaffordable, so there are a small number of investors who buying with a plan of holding onto the property until their child reaches adulthood,” Mr Tiller said.
High interest rates, however, are forcing some investors with heavily leveraged portfolios to sell to improve cash flow. Those with properties that are significantly negatively geared are having to dip more into their own pocket to cover the difference between rental income and higher mortgage repayments.
2. Rentvesting
It is not just experienced investors looking to add to their portfolio; first-time buyers are also using investing as a way of getting a foothold in the market. CoreLogic reports ABS loan data indicates an increase in first homebuyer loans used for investment purposes, though the overall number is quite low.
Rentvesting is a popular strategy that allows people to rent in an area they prefer while buying property in an area they can afford.
Most first-homebuyer grants require the purchaser to live in a property for a certain period to be eligible for assistance. So, rentvesting may mean a first-time buyer won’t be able to access all of these benefits. However, there are many tax advantages, such as negative gearing and depreciation, as well as the ability to generate income.
3. Freestanding home or apartment?
Savvy Investors are looking for freestanding homes on large blocks with potential for future land redevelopment. This trend is being driven in urban areas with limited land supply and offering long-term capital gains if the property is rezoned.
While apartments are more affordable for investors, there remain concerns about body corporates and building defects.
“Investors are becoming a bit wary, and there is a need to do proper research and check how much money is in their sinking fund,” Mr Chapman said.
“There are some body corporates that are run very poorly, and when something pops up, it can be very expensive because the sinking fund just hasn’t kept up with the rising costs of repairs. Tradespeople are now three times as expensive as they were five years ago.”
4. Location hotspots
NSW
Investors can expect to pay more than $1 million for an investment property in Sydney.
As rents are now unlikely to cover the mortgage, cash buyers or those with a lower LVR are looking for potential long-term capital growth.
Investors should be looking in the suburbs, such as Blacktown, with strong rental demand and infrastructure growth. Regional hubs such as Orange with health, education and mining industries could also offer potential returns.
Victoria
Market analysis from realestate.com.au shows nearly 5,000 investors sold properties in Victoria after changes to the land tax threshold with an introduced flat levy. The State Government is also considering energy-efficient rental standards such as ceiling insulation and air-conditioning.
“Given these changes, there has been a bit of a flurry of listing activity from Melbourne investors,” Mr Tiller said.
“While there is not that much demand, with price growth softening, some opportunistic investors are looking for a good bargain. There are a lot of listings, so they can negotiate on price. Melbourne has a consistent economy and population growth and there is still demand for rental properties plus attractive yields.”
Queensland
It is possible to purchase an investment property in Brisbane for around $400,000 making it a popular choice for investors.
The Gold Coast City Council’s decision to charge $8,000 for properties to be used as Airbnb has seen more homes return to long-term leases, and this has driven investor activity.
Other regional hotspots include Sunshine Coast, Townsville, Cains and Toowoomba.
South Australia
Similar to Brisbane, it is possible to purchase an investment property for around $400,000. Adelaide’s fringe suburbs as well as inner and outer areas are proving attractive to investors.
Regional hotspots include Port Lincoln with growth in aquaculture, exports and tourism.
Northern Territory
Government spending in the Northern Territory, including mining, defence and renewal energy, is attracting property investors to Darwin and Palmerston. Exciting projects such as SunCable, a 12,400-hectare solar farm that will transport electricity to Darwin and then to Singapore via a subsea cable, are generating good interest from investors. Suburbs to watch include Parap, Zuccoli and Braitling.
ACT
Investors in the ACT can benefit from stamp duty concessions when purchasing properties that are already rented, making it an attractive option. However, they are required to pay an annual land tax, which can be a deterrent when buying a freestanding home. Most investors in the region are from Sydney, including many Mum and Dad investors.
Apartment hotspots include suburbs such as Phillip where it is possible to buy a one-bedroom apartment for $400,000 to $500,000 with a 7 per cent yield.
Western Australia
Perth has been a popular choice for East Coast investors, but this trend has started to decline from mid-year due to affordability and valuation. There is a strong demand for coastal and character homes, including in pockets of Mandurah, Inaloo and Two Rocks.
Apartments remain attractive and are priced from $300,000 to $600,000 with around a five per cent yield. There are some opportunities with Perth City. Regional hotspots include Busselton and Geraldton.
Tasmania
Devonport is becoming attractive to investors as a key port city with strong tourism and infrastructure. A basic weatherboard cottage is currently fetching around $450,000 and will be leased for around $450 per week. Interstate investors often face tough competition from locals and first-home buyers, with affordability driving the market.
5. Future Market Outlook
Prices in Brisbane, Perth, and Adelaide are expected to climb further, keeping these markets attractive for investors. Regional areas will stay in demand for their affordability and rental returns.
High interest rates are pressuring household budgets and mortgage holders, but Mr Tiller believes the RBA is unlikely to cut rates before May 2025 due to strong employment, persistent inflation risks, and global economic uncertainty.
Once this occurs, it is likely to further encourage investor activity with increased market confidence and improved cash flow.
“The Australian real estate market is set for another active year in 2025. However, price growth will vary by geography, price point, and property type, reflecting state-specific and buyer-specific dynamics,” Mr Tiller said.
“For investors, this means doing your research, looking at what types of dwellings are in demand and defining your own goals so you have a clear picture of what you want to achieve.”
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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