Where Are We Now — And Where Are We Headed?
Where are we now, and where are we headed?
Not because I believe the Australian property market is about to collapse. And not because I think another property boom is just around the corner. I asked the question because uncertainty changes investor behaviour, and investor behaviour can sometimes become just as important as the underlying fundamentals. We are currently operating in a very different property environment to the one we experienced during the post-COVID boom. Interest rates are higher, investor lending has moderated, government housing and taxation policy has changed, geopolitical tensions are affecting inflation and construction costs, and confidence has weakened. The obvious response is to sit on the sidelines. But I'm not convinced that is necessarily the right response. In fact, I think this period may ultimately prove to be one of the more interesting opportunities for well-researched property investors.
First, Let's Be Honest About Where We Are The Australian housing market has softened considerably. The Reserve Bank has increased the cash rate to 4.60%, with the latest increase occurring in September 2026. The RBA has made it clear that inflation remains higher than it wants, with higher global energy prices, geopolitical tensions and domestic cost pressures all contributing to the problem. (Reserve Bank of Australia) Housing prices have subsequently fallen across most capital cities, and new housing lending has declined. The RBA's latest Financial Stability Review is particularly interesting because it provides some perspective that is often missing from the headlines. Despite the recent falls, most Australian mortgage borrowers remain resilient, arrears remain low and most borrowers still have substantial equity buffers. The RBA estimates that even if housing prices fell another 20%, only around 5% of mortgages would move into negative equity. (Reserve Bank of Australia) That doesn't sound like a housing system on the verge of collapse to me. It sounds like a market that is adjusting. And there is a big difference.
So Why Does the Market Feel So Difficult? I think there are several things happening simultaneously. Interest rates have changed the mathematics. An investment property that looked attractive when borrowing costs were considerably lower can look very different when the cost of money rises. This affects: • borrowing capacity • serviceability • cash flow • negative gearing • investor confidence • development feasibility • construction costs • buyer demand. And investors are particularly important because the RBA notes that investor activity has historically had a greater influence on housing price dynamics than owner-occupier activity. When investors retreat, they can amplify a downturn. (Reserve Bank of Australia)
Then There Is Government Policy This is probably one of the biggest changes investors need to understand. The Federal Government's Homes for Australia plan proposes significant changes to negative gearing and capital gains taxation from 1 July 2027, including restricting negative gearing on established residential properties acquired after Budget night and changing the treatment of the CGT discount. (Treasury) Whether somebody agrees with these changes politically is almost beside the point. What matters to an investor is that the rules of the game are changing. And uncertainty causes people to hesitate. Investors don't necessarily stop believing in property. They simply say: "I'll wait and see what happens." And I think that psychological response is extremely important.
But There Is Another Side to the Story Australia still needs housing. A lot of it. The Government's $47 billion Homes for Australia plan is built around increasing housing supply, while the new Local Infrastructure Fund is intended to help unlock infrastructure supporting up to 65,000 homes over the next decade. (Treasury) And despite all the discussion around migration, Australia's population increased by 392,700 people in the year to March 2026, including net overseas migration of 292,100. (Australian Bureau of Statistics) That doesn't mean every suburb will grow. It certainly doesn't mean every new development will perform. But it does tell me something important: The underlying demand for housing has not disappeared.
The Geopolitical Issue We Can't Ignore This is another area where I think property investors need to broaden their thinking. The Australian housing market doesn't operate in isolation. Global events affect: Energy prices → inflation → interest rates → borrowing costs → property demand. The RBA has specifically identified the escalation of conflict in the Middle East and higher global energy prices as important inflationary risks. It has also identified strong global investment in AI-related technology as another source of price pressure. (Reserve Bank of Australia) This is why I am reluctant to make a five-year property forecast based purely on a historical growth chart. The world is changing too quickly.
So What Do I Think Happens Next? I don't think we will see one dramatic moment where the property market suddenly "turns". I think we will see a gradual return of confidence. First, investors will want to see interest rates stabilise. Then they'll want to see property prices stabilise. Then they'll want evidence that rents are continuing to rise. Then borrowing capacity will start improving. And eventually, investor psychology changes. Suddenly the conversation goes from: "I'm not sure whether I should buy." to: "I wish I'd bought six months ago." That's the point where competition returns. And this is where I think investors need to be careful. By the time everyone feels confident again, the opportunity may already have moved.
I Don't Want to Predict the Bottom I've never been particularly interested in trying to pick the exact bottom of a property cycle. Nobody rings a bell and tells us: "Today is the bottom." Instead, I ask a different question: Can I buy an asset today that still makes sense if the market doesn't grow for two or three years? That's a much more useful question. If the answer is yes, then short-term market timing becomes less important.
So What Am I Looking For Now? This is where my approach to property investment has become even more focused. I'm not looking for the suburb that has just gone up 20%. I'm looking for the reasons it could continue to grow. And there is a significant difference between those two things. I'm looking at: Population growth Where are people moving? And more importantly: Why are they moving there?
Employment Are jobs being created? Are major employers investing? Is the economy becoming more diverse?
Infrastructure What is actually being built? Roads? Hospitals? Schools? Transport? Industrial precincts? Major government projects? And importantly: Is the infrastructure coming before or after the population growth?
Supply How much land is available? How much housing is coming? Can developers actually get the infrastructure required to release it? Too much supply can suppress growth. Too little supply can create competition. The sweet spot is often: Growing demand + constrained or appropriately staged supply.
Then I Look at the Property Itself This is where I think the industry sometimes gets it wrong. A great suburb doesn't automatically make a great investment. I want the actual property to work. I want: • strong rental demand • sensible entry price • realistic yield • good tenant demographics • owner-occupier appeal • quality construction • appropriate land component • manageable holding costs • strong resale appeal. And increasingly, I want options. Can we hold it? Can we refinance it? Can we manufacture equity? Can we sell part of it? Can we develop it? Can we improve the income? Not every property needs to have all of these options. But the more options we have, the more resilient the investment becomes.
I Think Dual-Income Property Is Becoming Particularly Interesting This is something I've become increasingly convinced about through the opportunities we've been researching. A dual-income property can provide something very valuable in an uncertain market: Cash-flow resilience. Instead of relying upon one tenant and one rental income, you potentially have two income streams. That doesn't guarantee performance. But when borrowing costs are elevated, cash flow matters. It can be the difference between comfortably holding an asset through a slower market and being forced to sell at the wrong time.
I'm Also Becoming More Interested in Buying Ahead of the Growth I would much rather identify: Infrastructure + population growth + affordability + rental demand before the market fully recognises the combination, than buy into a suburb simply because everyone is talking about it. This is why I've been particularly interested in some of the regional Queensland and coastal markets we've been researching. Not because I believe every regional market will outperform. They won't. But because there are areas where the fundamentals are still developing.
What I Would Avoid The current market also makes it easier to identify what I don't want. I would be cautious about: • buying purely on a headline growth forecast • paying a premium for a fashionable suburb • areas with enormous future housing supply • properties with weak rental demand • developments dependent upon one industry • high negative cash flow without a strong strategic reason • properties where the numbers only work if interest rates fall • properties where the only investment thesis is "the area is going to boom." That's not investing. That's speculation.
The Opportunity in Uncertainty This is probably the part of the current market that interests me the most. When everyone is confident, everybody wants to buy. When everybody is nervous, fewer people want to buy. That can create opportunities. The RBA says investor credit growth has moderated in response to tighter monetary conditions, tax changes and softer housing prices. (Reserve Bank of Australia) At the same time, builders and developers still need to sell stock. Landowners still need to transact. And good investment property still needs to be created. That can create a very different negotiating environment for a well-prepared buyer.
So Where Are We Headed? I don't think we're heading into the end of Australian property investment. I think we're heading into the end of lazy property investment. And perhaps that's not a bad thing. The last decade has taught many investors that property almost inevitably goes up. The next decade may teach us something different: Good property tends to outperform average property. Location will matter. Supply will matter. Infrastructure will matter. Rental demand will matter. Debt structure will matter. And the price we pay will matter enormously.
My Investment Philosophy Going Forward I've therefore come to a fairly simple conclusion. I'm not trying to predict the property market. I'm trying to find properties that can survive the property market. If the market grows strongly, fantastic. If it grows slowly, the property still needs to work. If interest rates remain higher for longer, the cash flow needs to be manageable. If investor sentiment remains weak, we want an asset that still has genuine underlying demand. And if the next growth cycle begins earlier than expected, I want to already own the asset before everybody else realises what's happening. That's the difference between chasing growth and positioning for growth.
And Perhaps Most Importantly... I don't think investors should become negative simply because the market is uncertain. Uncertainty has always been part of investing. What changes is where the opportunity sits. Right now, I believe the opportunity is moving away from the broad market and towards carefully selected assets in carefully selected locations. So my question isn't: "Is now a good time to invest in property?" That's too broad. My question is: "Is this particular property, in this particular location, at this particular price, supported by enough fundamental demand and enough strategic flexibility to make sense for this particular investor?" If the answer is yes, I'm interested. If the answer is no, I don't care how good the suburb's growth forecast looks. I'll walk away. Because in uncertain markets, I don't believe the smartest investor is necessarily the one who is the most optimistic. I believe it is the one who is the most prepared, the most selective and the most willing to let the numbers make the decision. And perhaps that is where we are now. Not at the end of the Australian property story. But at the beginning of a different chapter.
