Tim Keith
Growth in house prices in Australian capital cities could accelerate, with the housing shortage likely to worsen over the next two years as population growth feeds demand, underpinning further gains in property prices and rents, according to private credit investment manager and non-bank lender, Capspace.
Research conducted by Performance Property for Capspace reveals the extent of the ongoing housing shortage, with building approvals not keeping up with demand in capital cities.
Tim Keith, Managing Director of Capspace, said the probability of price rises for houses and units is high in Melbourne, Sydney and Brisbane as residential property sectors in these cities move further into undersupply over the next 24 months.
“Continued evidence of supply chain issues and the cost of construction means the unit and housing markets continue to be in an undersupplied position, with overseas skilled migration likely to help push demand for housing higher,” Mr Keith said.
“Strong rental growth is still evident across the country for housing across most capital cities, with the current national vacancy rate sitting below 2%. As of March 2024, national dwelling approvals sit at 162,640 for houses and units. Performance Property’s analysis reveals that building approvals are simply not keeping up with population increases. We saw a direct increase over the last 12 months of 303,000 skilled migrants moving to Australia.
“This will put further pressure on rental markets nationally. Evidence of further increases to net interstate migration for Queensland and Western Australia are positive and that could make an argument for investors to get more exposure to these capital cities for further diversification,” Mr Keith said.
Capspace uses property as security on loans that it offers customers, so it is important for the private lender to continually research and understand the property market.
While property owners have benefited from price rises, investors should consider diversifying their portfolios into other assets, according to Mr Keith.
Recently released economic data, ABS Household wealth data, shows household net wealth sat at a record $15.50 trillion in the December 2023 quarter, boosted by a record level of property assets of $10.50 trillion as at 31 December 2023. Households held $1.35 trillion directly in equities, $1.67 trillion in cash and deposits, and $3.59 trillion in superannuation, all record high levels. As a proportion of net household wealth, residential property accounted for around 64.5%, up from 61.7% in December 2020.
According to Mr Keith, Australians should be devoting more of their household wealth to fixed income assets such as private credit to diversity their investment risk and to reap more attractive income yields.
“The key driver of household wealth gains is rising property prices. With such a large proportion of individual wealth tied up in the property market, it makes sense for investors to diversify into other asset classes, particularly those from which they can draw an income, such as investments in private credit via non-bank loans to companies,” said Mr Keith.
“Ultimately, it is assets other than your home, particularly those from which you can draw income, that will support investors in everyday living and in retirement. So other investment strategies should consider diversification into fixed interest,” said Mr Keith.
“Private credit can deliver investors yields close to 10% per annum and investors understand their capital has protection based on the stringent loan process, lending and compliance policies, along with the security taken over borrower assets,” said Mr Keith.
