Australian property prices are continuing to rise, with KPMG forecasting an additional 5 percent increase before the end of the year. The country’s median property price in the capital cities reached a record high of $851,000 in May, according to the PropTrack home price index. KPMG predicts a rise of 5.3 percent across capital cities and 4.5 percent across the country by December. However, there are variations in growth between different markets. Perth is expected to see the most rapid rise in values, with an increase of up to 10 percent, while Darwin is set for more modest growth under 1.7 percent. Brisbane and Adelaide follow closely behind Perth, with projected price increases of up to 7.9 percent by the end of the year. Sydney and Melbourne, the two most populous cities, are expected to see growth rates of 4.9 percent and 2.8 percent, respectively.
KPMG’s analysis also suggests that Sydney, Melbourne, Canberra, and Darwin will experience greater growth in 2025 compared to this year, while the rate of increase will ease in other capital cities. This prediction is based on the assumption that the Reserve Bank of Australia (RBA) will begin cutting interest rates next year. KPMG chief economist Brendan Rynne explains that after the significant house price increases seen in several capital cities over the past year, a slowdown in growth can be expected due to factors such as a drop in migration, the delayed impact of high interest rates, and a predicted increase in unemployment throughout the rest of this year. Rynne also notes that foreign investment activity has not yet recovered to levels seen two years ago. Nevertheless, solid price gains are still anticipated over the next 18 months, especially in 2025 when the RBA is expected to introduce interest rate cuts.
Several contributing factors are driving these price increases, including a lack of housing supply, high construction labor costs, and high rental prices. Domain’s Forecast Report also expects growth in property prices, with an increase of up to 6 percent for houses and 4 percent for units by the end of the 2024-25 financial year. Most capital cities are expected to have record-high house and unit prices by that time, with the exception of Melbourne and Canberra. Sydney’s median house price is projected to surpass $1.7 million, while Brisbane will reach almost $1 million.
Contrary to expectations of falling interest rates, Phil O’Donoghue, the chief economist of Deutsche Bank, believes that the RBA will resume hiking the cash rate in August. He argues that underlying inflation in Australia is intolerably high and points out that Australia is the only G10 country where underlying inflation has increased since December. Data from Deutsche Bank shows that Australia’s core inflation has risen by 0.4 percent since December, while other countries like New Zealand and the UK have seen drops in core inflation. Despite maintaining the cash rate at 4.35 percent since November 2023, the RBA has not ruled out further rate hikes.
Overall, the Australian property market continues to experience growth, driven by various factors including supply constraints and high rental prices. While KPMG predicts a slowdown in the rate of growth due to factors such as a drop in migration and high interest rates, solid price gains are still expected over the next 18 months, especially in 2025 when the RBA is anticipated to introduce interest rate cuts. However, there are variations in growth rates between different capital cities, with Perth expected to see the most rapid rise in values and Sydney and Melbourne experiencing more moderate growth.
