Weighing up the Property Boom

Residential property prices are booming not only in Australia but also around the world. What’s the view for property investors and what factors should you consider before taking the leap?

Across Australia residential property prices are booming, thanks to pent-up demand, record low interest rates and ready access to mortgage finance.

Median house prices in metropolitan and regional areas have surged, and that trend is set to continue as owner occupiers and investors compete for limited stock.

National dwelling values rose by an average 2.8 per cent in March, the fastest monthly gain since October 1988, according to CoreLogic. This followed price rises in every capital city.

But what’s happening in the property market here is actually being replicated right around the world, for precisely the same reasons.

Data from the Organization for Economic Cooperation and Development shows housing prices in 37 developed countries have risen at their fastest pace in almost 20 years.

The United States, China, Canada, New Zealand, South Korea, and much of Europe, are all heading into new territory in terms of property prices.

Parts of the Chinese property market have risen around 16 per cent over the last year, while prices in New Zealand have jumped more than 20 per cent since the start of 2020.

And it’s a situation that central banks and financial regulators are monitoring very closely. Although any rises in official interest rates are almost certainly off the cards for some time, some regulators may impose tighter controls on lending.

While they’re unlikely to intervene in any way at this stage and disrupt the pace of economic recovery, a general concern is that if property markets become too overheated that could create stronger inflationary pressures.

This would ultimately lead to higher rates, which is behind the market sentiment that’s currently driving longer-term government bond yields higher.

In its March 2021 monetary policy minutes, the Reserve Bank of Australia noted its board members had noted that housing market conditions warranted close monitoring in the period ahead.

“In particular, it was important that lending standards remain sound in an environment of rising housing prices and low interest rates.”

The Australian Prudential Regulation Authority (APRA) is also monitoring the market, but says there is no cause for immediate alarm.

The view for property investors

Australian economists and other property market forecasters are predicting that house prices will continue to gain ground over 2021.

The same may not be the case for apartment prices, particularly in Melbourne and Sydney where there is an oversupply of existing properties and more new apartments are under construction.

For property investors, there are a wide range of factors to consider.

Although residential prices are gaining broadly, property price growth is never uniform and capital returns vary considerably across cities and regions, by location, by property type, and an individual property’s physical condition.

On a rental income level, current market conditions remain fickle.

The impacts of COVID-19 during 2020, including a rise in unemployment levels, has resulted in governments enacting legislation enabling severely affected tenants to seek rent reductions and payment deferrals.

As a result, many property owners are still contending with lower rental income and, in some cases, have needed to seek mortgage payment relief from their lenders.

Rental demand also has weakened due to the departure of temporary residents as a result of COVID-19, most notably foreign university students. This will be further exacerbated with net overseas migration to Australia expected to remain negative into 2022.

Finally, in Victoria we have new rental laws which are now in effect (from 29th March 2021).

The changes to the law clarify the rights and responsibilities of renters and rental providers – from before you sign a rental agreement until after the agreement ends – and apply to all types of tenancies, private rentals, caravan and residential parks, and rooming houses.

The law changes include a ban on rental bidding, new rental minimum standards, no eviction without a reason, allowable modifications by renters and urgent repairs.

The outlook for rates

On a monetary policy level, the RBA has made it clear that, like most of other central banks, it is not likely to be raising official interest rates for several years.

That’s because neither wages, or inflation are rising fast enough to warrant a rate rise to dampen consumer sentiment at this stage, and especially with unemployment rates still elevated.

Yet, investing into property should generally be considered a long-term strategy. So, even though rates are at record lows now, there’s every likelihood they will rise over the medium term.

This should be factored into your future capacity to service borrowings.

Assessing your investment goals

Whether you already own investment property or are considering an investment into direct property for the first time, it’s vital to see how property fits in with your overall investment goals.

What is your overall strategy with owning property and your investment time frame?

It’s also important to understand that property is an illiquid asset. Unlike assets that are highly liquid and can be readily sold on financial markets, either as a whole or in smaller quantities, generally the only way to realise capital growth from an investment property is to sell it.

The only exception is when it’s possible to sub-divide land and sell off part of a property.

Furthermore, like other investments, owning property is not an instant pathway to gains. There are substantial entry, holding and exit costs.

And, as past episodes have shown, such as during the Global Financial Crisis, there will be periods when property prices decline, and sometimes quite sharply.


The decision whether or not to residential property is a big one so it’s vital to weigh up both the pros and cons. Through our Professional Network of trusted specialists, Calibre Private Wealth Advisers can help connect our clients to experienced property buyers advocates to assist in searching, assessing and negotiating the successful purchase of residential property for homeowners and investors in and around Melbourne.

We are also able to help our clients and their broader families with highly competitive residential and commercial financing solutions through our long-term relationship with a professional mortgage broker.

Next steps

To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.

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