Real estate investing in 2024: a nicer year looms for many

Many of the nation’s 2.2 million real estate investors had a tough 2023, but a brighter outlook is emerging. Here’s why.

Residential real estate investors copped a lot of flak in 2023.

If they weren’t being abused for raising rents sharply or pushing up property prices by outbidding first home buyers, they were being abused for being greedy or contributing to the nation’s housing shortage by putting their properties on short-term rental platforms such as Airbnb. Painfully-high mortgage repayments hit hard, too.

However, 2024 is potentially shaping up as a better year for property investors.

They will probably still cop abuse, but a range of other positive factors are emerging.

In 2023 home prices rose 5.5 per cent nationally, according to PropTrack data, but they varied dramatically between capital cities: 14.8 per cent for Perth, 10.9 per cent for Adelaide, 10.5 per cent for Brisbane, 7.7 per cent for Sydney and 0.9 per cent for Melbourne, while Hobart and Darwin both fell.

Rents, too, have climbed dramatically, with median rental prices for dwellings in the five biggest capital cities climbing between 9 and 20 per cent in 2023.

Forecasters are not expecting much growth in 2024, but real estate investors are poised to benefit in other ways.

Australia is not building enough homes to meet rising demand. Picture: iStock

Number one is interest rates, as the Reserve Bank of Australia appears likely to cut its cash rate at some time this year, flowing through to variable interest rates.

Investors who are paying off their own home and also an investment property or two have been smashed by 13 RBA rate rises since May 2022 that pushed up borrowing costs 63 per cent. Rising rents have offset some of that mortgage pain but nowhere near all of it.

And when interest rates fall, it’s highly unlikely that rents will fall too – meaning the strong income gains of the past two years are locked into investment property returns for years to come.

Many real estate watchers have been worried about the mortgage cliff, as hundreds of thousands of fixed-rate mortgages revert from 2 per cent to 6 per cent-plus interest rates and inflict widespread pain.

But so far the mortgage cliff has better resembled a gently sloping hill, with banks not reporting major loan arrears. It seems the financial fat many households built up during the pandemic has been enough to prevent massive mortgage collapses and house price plunges.

Two other factors are propping up property prices – supply shortages and migration.

Australia is not building enough homes to put roofs over heads of all who need them, and the rise of Airbnb and other short-stay rental accommodation in recent years has removed more housing stock from traditional rental markets.

Surging migration is also keeping property demand high. Last financial year Australia had net overseas migration of more than 500,000 people – that’s an extra half a million humans needing somewhere to stay.

Economists expect migration to remain solid again this year.

This population surge is the reason Australia has not had an official recession, even though the economy is going backwards on a per capita basis. It’s also the reason why property rents and prices should stay high while interest rates drop – a triple gain for the nation’s 2.2 million real estate investors.

Originally published as Real estate investing in 2024: a nicer year looms for many