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With Australia officially entering the interest rate cut cycle, Sydney and Melbourne real estate markets are expected to see a short-term rebound.
If the market performs as expected, auction clearance rates in both cities will improve over the next four weeks and are likely to remain in the 60 70 range over the next two months.
Sydney Melbourne auction clearance rates have picked up
Despite the market experiencing a degree of decline at the start of the year, house price movements remain dependent on the extent of interest rate cuts throughout the year. If cumulative rate cuts reach 1 1 25 in 2025, Sydney house prices are expected to end the year up by around 3 5 and Melbourne by around 2 4 .
However, if the rate cuts remain at the current market expectation of 0.75, house price increases in Sydney and Melbourne are likely to remain in negative territory, limiting the momentum of the market recovery.
The key point is the next core inflation release and whether a second rate cut will be initiated in April.
Melbourne’s one-month growth ranked first in Australia for the first time at 0 67 , Perth enters a period of adjustment
The first rate cut is expected to incentivize more first-time buyers to enter the market against the backdrop of a rental market that remains tight in most capital cities.
Meanwhile, Perth and Brisbane continue to be seen as the strongest performing markets, followed by Adelaide.
From June 2024, Adelaide, South Australia, has officially implemented an unlimited first-time buyer stamp duty reduction. Buyers who qualify as first-time buyers in Australia will enjoy a full exemption from SA Basic Stamp Duty (BSD) up to a maximum rate of 5 5, regardless of the amount of the purchase.
In addition, Brisbane will implement an unlimited first-time buyer stamp duty relief from May 1, 2025 onwards. For example, by purchasing a new home valued at A$2 million, homebuyers will save approximately A$96,000 in stamp duty. This policy will effectively stimulate demand from first-time buyers in the local market.
Original Brisbane First Home Buyers’ Allowance Stamp Duty Relief Policy
The rate cut not only provides some financial relief for existing borrowers, but also boosts homebuyer confidence, leading to widespread expectations that interest rates are on a downward trajectory, or at least won’t rise again .
In addition, the interest rate cut will directly enhance home buyers’ ability to borrow, as banks’ lending approval criteria may also be relaxed in a lower interest rate environment.
As 2025 progresses, the market may experience a more pronounced sentiment of misplaced fear of FOMO, which could further drive demand for homeownership.
The basis for market favorability at this stage are
1 The Reserve Bank of Australia (RBA) has cut interest rates at a time of low unemployment4 , implying that economic fundamentals remain stable.
2 Immigration growth remains at an unsustainably high level, supporting housing demand
3 Crisis in the rental market remains, prompting budget-conscious renters to move to the home-buying market as soon as possible.
Immigrant Population Trends
In addition, once the federal election is officially called Looking at the current situation, the process may be about to start, with the stipulation that by May 17th , the real estate market could be in for a brief cooling off period. On the eve of previous federal elections, the market usually exhibits a similar trend, with auction clearance rates and listings dropping off.
However, the two main political parties have yet to propose significant changes to housing policy, with the exception of Labor’s extremely ambitious target of building 1.2 million homes by 2029, so the impact of policy uncertainty on the market is expected to be limited.
For homebuyers looking to enter the market as soon as possible, this period may provide a relatively favorable window to purchase a home.
Will interest rate cuts continue in the future?
Historically, once the central bank has initiated an interest rate cut cycle, it tends not to stop at a single adjustment, so the likelihood of further rate cuts is high.
If the revised Trimmed Mean Inflation falls below 3 in April, i.e. into the Reserve Bank of Australia’s RBA’s inflation target range, the RBA will have more policy space to continue cutting rates.
However, the central bank will need to weigh this carefully to prevent inflationary pressures rising again and causing a second shock to the economy.
Revised core inflation now stands at 3 2
From a broader perspective, despite a more pessimistic outlook on inflation in the early 1920s, the risk of a return to the kind of hyperinflationary situation seen in the 1970s is now looking rapidly diminishing.
There are a number of potential events globally that could further contribute to a pullback in the level of inflation, including
A return to peace in Ukraine, with energy and commodity prices likely to come down quickly, even if some trade barriers remain in place in the process. The restoration of global energy supplies would help to alleviate the current inflationary pressures stemming from supply chain disruptions and higher energy prices.
Government cuts in inefficient spending and reforms in state governments will help to promote a supply-side recovery. Such structural reforms would not only help to reduce the burden on public finances, but also contribute to economic growth by further reducing pressure on interest rates through more efficient markets and lower production costs.
As these potential factors unfold, global inflationary pressures are likely to ease further, especially as volatility in energy and commodity prices will have a positive impact on longer-term inflationary expectations.
Taken together, the real estate market is expected to see a round of recovery, especially as demand from first-time buyers will be effectively incentivized by the cycle of interest rate cuts.
If the global economic situation improves further, the uptrend in house prices in Australia is likely to become more pronounced.
For those interested in the Australian market, Li invites you to join our professional discussion group to discuss the dynamic trends and opportunities in the Australian real estate market in 2025.
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