Interest rate cuts and regional strength set to drive Australia's property market dynamics
Sydney-based property buyers agency InvestorKit has outlined seven key trends it predicts will shape Australia’s property market in 2025, particularly the housing sector.
The trends, indicated in its new Trends in the New Year whitepaper, reflect both ongoing patterns and emerging developments that could impact property investors and buyers across the country.
Interest rates declining
InvestorKit anticipates that falling interest rates will boost consumer confidence in 2025.
“While confidence recovery in 2024 has been notable even with high interest rates, we expect this trend to accelerate in 2025 as rates begin to fall, driving broader and more significant confidence recovery across all states and submarkets,” the firm said.
Affordability leading demand
Affordable property markets are expected to remain in high demand, even as borrowing costs ease. InvestorKit forecasts that states such as Western Australia, South Australia, and Queensland will continue to attract buyers, with renewed interest in Victoria and the Northern Territory due to their affordability and favourable positioning in the market cycle.
Slower rental growth amid tight supply
Rental growth is likely to slow in 2025 as affordability pressures build, but rental supply constraints are expected to persist. InvestorKit predicts that low rental vacancy rates will push some renters toward the sales market, further driving demand and price growth in many areas.
Recovery in slower-moving markets
Markets that have experienced slower growth in recent years may see renewed interest as rental yields improve.
“With interest rates expected to fall and rental yields likely to improve further in 2025, these moderate-yield markets are poised to gain popularity,” InvestorKit said, though it added that stronger price gains in these markets may take longer to materialise.
Supply shortages driving price growth
A chronic shortage of housing supply is expected to remain the main driver of price increases across the country, continuing a trend that has characterised Australia’s property market in recent years.
Resilient regional markets
InvestorKit predicts that regional property markets will remain robust in 2025, underpinned by continued regional migration. Strong demand for housing in these areas is expected to support price growth outside the major metropolitan markets.
Widening price gaps
The price gaps between different segments of the market are likely to widen further as the trend of upsizing gains momentum. InvestorKit anticipates that capital growth in more affordable markets, combined with improved affordability from lower interest rates, will encourage more buyers to move up the property ladder.
“Overall, we expected 2025 to be similar to 2024, where divergence exists between various markets. We anticipate further price growth in most submarkets, driven by rate cuts, improved consumer sentiment, strong population growth, tight rental markets, increased investor activity, and a chronic housing supply shortage,” InvestorKit said.
“However, the major cities (Sydney and Melbourne and their surrounding areas) that determine the national data will likely see weaker growth. While the job market will continue to be active, we do expect it to weaken as time progresses through 2025.”
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