House prices dropped in Victoria in the June quarter as higher interest rates took their toll on the property market in that state, while house price growth was strong in Western Australia, South Australia and Queensland, overtaking price growth in New South Wales, and property prices could continue to show weakness in the short to medium term in Melbourne, according to private credit investment manager and non-bank lender, Capspace.
House price data for the second quarter released by the Australian Bureau of Statistics reveals the average national price of residential dwellings rose by $15,600 or 1.6% to $973,300 during the June quarter. Prices were highest in NSW, with a mean residential dwelling price of $1,222,000 in the June quarter, rising around 1% from $1,210,500 in March. NSW was followed by the ACT with an average dwelling price of $953,900, up from $946,300, then Victoria with an average of $900,300, falling from $906,900.
Dwelling prices surged 6.2% in Western Australia, rising to $816,000 from $768,300. South Australia also showed very robust growth of 4.2% in average dwelling prices to $800,400, up from $768,000 in the March quarter. In Queensland, the average dwelling price rose 3.6% to $885,400 up from $854,900 in the March quarter. The lowest average dwelling price was in the Northern Territory at $538,000, up from $530,400.
Tim Keith, Managing Director of Capspace, said continued evidence of high construction costs and a decline in residential construction activity since 2021 means housing markets around Australia are undersupplied, putting upward pressure on property prices in most cities. “Building approvals are simply not keeping up with demand and as a result, property prices in most capital cities are expected to rise over the next two years,” he said.
“However, Melbourne house prices could continue to show weakness in the short to medium term, as already indicated by this ABS data, with higher interest rates deterring some potential buyers, though this could present an entry point for new homebuyers, as affordability rises.”
Research conducted by Performance Property for Capspace reveals expected price gains for housing in some cities. Perth is expected to reap aggressive house price growth of at least 25% in the medium term, leading to a median price reaching over $900,000. The Sydney house market will remain stagnant with unaffordability high, though Sydney units are still capable of 20% price growth and could reach a median price of $950,000.
Adelaide property prices could grow about 10% before reaching a peak in the short to medium term while Brisbane can expect moderate growth in the medium term of 20%, reaching a median price of $1,000,000, according to Performance Property.
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.
Australians have stockpiled their wealth in property; around two-thirds of household wealth is now held in residential property, a proportion that has increased over time with rising property values. “With such high exposure to residential property, many Australians are vulnerable to a correction in the property market over the longer term, especially if the economy slows and the unemployment rate continues to rise,” Mr Keith said.
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.
“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.
The variable interest rate of return on the Capspace Private Debt Fund was 9.3% in July, well above prevailing interest rates on term deposits. “For income seeking investors who are willing to take on more risk than that involved with cash or term deposits, private credit investments can deliver investors higher yields,” said Mr Keith.
“Private credit also offers diversification into a defensive asset class with features and characteristics that can help to offset any correction in share markets. Additionally, it offers opportunities to younger and older investors such as SMSFs as they can invest much smaller amounts of money, unlike property investments which due to their expense are beyond the reach of many Australian,” he said.
