Property

Freya is an accomplished buyer and vendor advocate, and the Director of Realm Advocates. With extensive experience in the property industry, she specialises in guiding clients through every stage of the purchasing, investing, and renovation process, helping Australians make informed property decisions with clarity and confidence. You can find Freya at realm-advocates.com.au.

Ownership in Australia: Most Australian real estate is recorded under the Torrens Title system, which uses a central register to confirm who owns each parcel of land. Ownership can be freehold, where the interest is effectively permanent, or leasehold, where the right to occupy or use the land exists only for a defined period.

Property types and perceived stability: Residential property includes houses, townhouses and units where people live. Commercial property covers offices, retail and warehouses, while industrial property includes factories, heavy manufacturing and large logistics sites. Because well-located land in major cities is scarce, property is often seen as a relatively stable asset, but values still move with interest rates, supply, demand and broader economic cycles.

International comparison: In countries such as the United States and United Kingdom, ownership systems may rely on deeds registration or other models rather than Torrens. Lease lengths, property taxes, tenancy protections and planning rules can also differ, which influences how investors think about risk and return in each market.

Main determinants: Property values are shaped by location, land size, zoning rules, and access to infrastructure and amenities such as schools, transport, employment hubs and shops. Streets with strong owner-occupier demand and limited new supply tend to command higher prices and show more resilient growth.

Land versus buildings and interest rates: Over time, the land component often appreciates because well-located land is scarce, while buildings depreciate as they age and require maintenance. Rising interest rates reduce how much buyers can borrow, which usually cools demand and places downward pressure on prices. When rates fall, borrowing power increases and demand often strengthens.

Infrastructure example: The extension of Sydney’s Metro Northwest rail line, opened in 2019, improved access to several north-west suburbs. As transport links and commute times improved, many of these areas experienced increased buyer interest and price growth, illustrating how infrastructure upgrades can lift demand.

Typical purchase process: Buying property usually involves making an offer or bidding at auction, signing a contract of sale, paying a deposit of around five to ten percent, and progressing through any cooling-off period that applies in that state. Before settlement, buyers organise finance approval, building and pest inspections, and legal checks such as title and property searches, followed by settlement and formal transfer of ownership on the land titles register.

Role of due diligence: Inspections and searches can uncover structural problems, pest damage, encumbrances, easements, covenants or planning restrictions that affect how the property can be used or renovated. Skipping these checks exposes buyers to unexpected costs, legal disputes or constraints after settlement.

First-home buyers and off-the-plan risks: Common mistakes include failing to budget for stamp duty and ongoing costs, misunderstanding loan approval limits, and assuming pre-approval guarantees unconditional finance. Buying off-the-plan adds extra risk, as the project is not yet completed and may face construction delays, changes in lending standards, or valuation shortfalls if the finished dwelling is worth less than the contract price.

First-home buyer errors: New buyers often over-borrow based on maximum bank approvals, underestimate ongoing costs such as rates, insurance and repairs, and skip building or pest inspections to save money upfront. These choices can create cash-flow stress or expensive surprises shortly after moving in.

Investor traps and co-ownership risks: Investors sometimes buy with emotion, chase high advertised yields in volatile markets such as mining towns, or underestimate vacancy periods and expenses. Buying with friends or family without clear legal agreements can also cause issues, as joint ownership complicates tax, borrowing and exits if one party wants to sell. Using tenants-in-common arrangements and formal co-ownership agreements helps clarify rights but does not eliminate the need for careful planning.

Emotional buying: Falling in love with a property can lead to overpaying or ignoring practical issues such as aircraft noise, poor layouts or limited growth prospects. Treating the decision as a financial purchase first, and a lifestyle upgrade second, is especially important when the property is being bought primarily as an investment.

Rental yield formula: Rental yield measures annual rent as a percentage of the property’s value:

Where:

• \(\text{Yield}\) = rental yield as a percentage
• \(\text{Annual Rent}\) = total rent received in a year
• \(\text{Property Value}\) = current market value or purchase price

For example, \$25{,}000 in annual rent on a \$500{,}000 property gives a 5% yield. This metric helps investors compare different properties and suburbs on a like-for-like basis.

Landlord obligations and yield versus growth: Tenancy laws cover repairs, bond handling, notice periods, rent increases and safety standards such as smoke alarms. Some areas, often regional towns or outer suburbs, are known for higher yields, while inner-city or land-scarce locations may offer lower yields but stronger long-term capital growth. Mining towns can show very high yields in boom times but rents and prices can fall sharply when conditions turn.

Different sensitivities to interest rates: Investors typically focus on after-tax cash flow, expected capital growth and the tax deductibility of interest, so rising rates can quickly turn previously positive or neutral cash flows negative. Owner-occupiers buy primarily to meet housing needs, so their demand is often less flexible, but they are still limited by servicing tests and borrowing capacity.

Why investors may exit first: Highly leveraged investors who rely on rental income to cover repayments are more likely to reduce exposure when rates rise and alternative assets such as term deposits or bonds start to offer more attractive risk-adjusted returns. When investor demand pulls back, price growth can stall or turn negative in investor-heavy areas.

Negative gearing and rental market effects: Higher interest costs can increase the size of negative gearing deductions for geared investors, softening the after-tax impact but only if they can handle short-term cash-flow strain. If higher rates discourage new investor purchases or push existing investors to sell properties to owner-occupiers, rental supply may shrink, tightening vacancies and pushing rents higher even if property prices are flat or falling.

Challenging the “always goes up” belief: Property markets experience downturns. Recent examples include the Sydney price correction between 2017 and 2019 and the national slowdown during the early 1990s recession. Assuming prices only ever rise can lead to over-borrowing and limited resilience when conditions change.

Key risk factors: Important risks include rising interest rates increasing repayments, extended vacancies that reduce income, unexpected maintenance or strata costs, and changes in tax or housing policy that affect investor returns. Planning buffers and stress-testing cash flow against rate rises helps manage these exposures.

Downturn history: During the Global Financial Crisis in 2008, Australian house prices fell less sharply than in many overseas markets, partly due to strong banking regulations and targeted stimulus, but they still dipped. Recognising that property is not risk-free encourages more conservative gearing and better risk management.

Global shocks and local markets: Events such as COVID-19 can rapidly change rental and price dynamics. Early in the pandemic, inner-city apartments saw vacancy spikes and falling rents as international students and tourists left, but many areas later rebounded strongly as borders reopened and domestic preferences shifted.

China and housing demand: Chinese demand for Australian property and construction materials affects both the demand side (foreign buyers and developers) and the supply side (cost of building new dwellings). Shifts in Chinese policy, capital controls or economic growth can therefore influence Australian property activity.

Immigration and housing need: Net overseas migration directly influences rental demand and new housing requirements. Higher migration levels typically tighten rental markets and support construction, while lower migration can ease pressure on vacancies and prices, particularly in major capital cities.

Starting point: Before entering the market, buyers need a clear picture of borrowing capacity, the types of property that match their goals, and all transaction costs including stamp duty, legal fees, inspections and moving expenses. This preparation helps avoid over-committing and supports better property selection.

Live-in versus investment decisions: Choosing whether to live in the property or rent it out changes tax treatment, cash-flow patterns and risk profile. Owner-occupied homes typically benefit from main residence CGT exemptions, while investment properties may generate deductible expenses but come with landlord responsibilities and exposure to rental market cycles.

Education and professional advice: Historically, location and access to infrastructure have been major drivers of long-term value. Because property transactions are large, leveraged and legally complex, young Australians are generally encouraged to build their knowledge and seek guidance from licensed financial advisers, mortgage brokers and conveyancers or solicitors before committing to a purchase.