Why property prices are expected to keep rising next year and beyond

October 18, 2023 Catherine Salat

Are you considering buying property? If so, you may want to act quickly.

That’s after a recent KPMG forecast predicted that home prices in Sydney and across Australia are set for a substantial rise in the coming years. 

Specifically, the accountancy firm expects house prices to increase nationally by 4.9% over the next eight months, before accelerating 9.4% in the 12 months to June 2025.

As the table below shows, in Sydney, the rise is forecast to be 4.7% by June 2024 followed by a 10.3% surge in the 12 months to June 2025.

Apartment prices are expected to follow suit, albeit at a slightly slower rate with KPMG expecting prices to increase:

  • Sydney = 4.3% by June 2024 and 8.6% by June 2025 
  • Nationwide = 3.1% by June 2024 and 6.0% by June 2025

What’s driving the increases?

KPMG chief economist Dr Brendan Rynne said there were several factors expected to push up prices. On the demand side, these include:

  • Heavier migration: Migration numbers are bouncing back. More people coming into the country means more demand for housing, adding strain to an already tight property market.
  • Anticipated rate cuts: The major banks have forecast up to five interest rate cuts between 2024 and 2025. Lower rates make borrowing cheaper, likey attracting more homebuyers.
  • High rental costs: As renting becomes increasingly expensive, it’s pushing renters to explore homeownership instead, further increasing demand.
  • Relaxed lending conditions: KPMG believes there’s a possibility that lending conditions will ease, making it simpler for buyers to secure loans.
  • Foreign investor demand: Foreign investor demand is rebounding, with the Treasury’s latest Foreign Investment Quarterly Report showing $7.9 billion worth of Australian real estate was purchased in the 2023 financial year. 
  • Work-from-home trend: The post-pandemic environment has normalised remote working, creating a long-term demand for larger living spaces. This change in lifestyle preferences further elevates property prices.

On the supply side, various constraints are also putting upward pressure on property prices:

  • Scarcity of land: Available land for new builds is limited, especially in metropolitan areas. Scarcity inevitably pushes up prices.
  • Falling approval levels: Building approvals have seen a marked decline with recent Australian Bureau of Statistic’s data showing a 22.9% year-on-year fall in August 2023.  Reduced rates of building approvals mean fewer new homes and units will be hitting the market.
  • Slower construction: Construction activity has been hindered by rising material costs and delays, further reducing the rate at which new homes are built.

All these factors add up to create a seller’s market, where the number of buyers exceeds the available homes.

While KPMG’s report said there were some factors exerting downward pressure on prices, it concluded that the supply/demand imbalance would ultimately outweigh them. 

Looking to buy property? Just Imagine Finance can help you get finance whether you’re a property investor, first home buyer or want to upgrade your home. To get started, contact us on catherine@justimaginefinance.com.au  or 0414 673 359.