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Herron Todd White: too soon to call a bottom in the property market

High interest rates and the prospect of more pain ahead for borrowers as fixed-rate loans roll off, suggests it might be “too soon” to call the bottom of residential property prices, according to the latest Herron Todd White (HTW) Month in Review.

In the March report, HTW National Director of Residential Ben Esau said despite the recent uptick in property values, it’s not clear what the rest of the year holds in store.

“There is much conjecture regarding when the current interest rates will stabilise and whether we’ve seen the bottom of the market in places such as Sydney and Melbourne, which have seen some of the heaviest reductions in values over the past 12 months,” Mr Esau said.

“The answer may be that it’s too soon to call; with inflation staying above the RBA’s desired level, they have shown clear intent to keep lifting interest rates until they have a reason not to.”

Mr Esau said the past few years had seen “the use of large market levers”, that have supported prices – but we are yet to experience the full effects.

“With any quickly applied market lever, adverse impacts may not appear straight away. Building grants and cheap money created unprecedented building demand and coupled with supply shortages, meant that fixed price building contracts put extraordinary pressure on builders and contributed to subsequent company failures,” he said.

“The significant drop in interest rates fuelled the conditions for unprecedented and almost universal increases in property prices across the country, with subsequent sensitivity to value falls and interest rate increases, which we are now facing.”

According to Mr Esau, despite the downside risk, there are still opportunities for property investors.

“For investors who can participate at increasing serviceability levels, serviceability tests, with buffer, (could be based on rates approaching 10 per cent), increasing stock levels and lower buyer demand may create opportunities to pick up better value assets than have been on offer since the start of the pandemic,” he said.

Mr Esau said tight rental markets were also a positive sign for property investors.

“The continued lack of rental availability is also likely to ensure rental values continue to grow, improving investor returns,” he said.

“With many market vacancy rates starting with one per cent and even several below one per cent, it’s unlikely there is short-term relief for tenants in sight.”

He said that while rising rents were a good thing from an investor perspective, there will come a time when tenants can no longer afford record rental increases.

“Although the prospect of increasing rental values may seem attractive as an investor, it may not be so straightforward as landlords need to grapple with the process of potentially passing on increasing interest rates to struggling tenants,” he said.

“Of course, there are also investors who will be significantly impacted by the increasing costs to service an investment property, but where banks are generally well structured to deal with clients in financial distress, individual landlords may not have that capability and may need to navigate chasing increasing returns and the human impact of a fast-paced rental market.”

Source: Herron Todd White


The tightest vacancy rates since 2011 and rising rents mean that Sydney investors are now moving their focus towards yield and away from capital growth according to HTW Director Shaun Thomas.

“With supply of new properties having declined over the past few years and demand likely to continue to increase, all the indicators suggest that property investors with an eye to income returns are likely to be attracted to the market in 2023, particularly as prices begin to bottom out in the second half of the year,” Mr Thomas said.

Mr Thomas said Western Sydney has always been a “smart” location for investors and this will likely continue in 2023.

“The high level of infrastructure investment in the region coupled with relatively lower median house prices and the shift to more people working from home has highlighted that more affordable and larger homes with backyards are still hot property and good long-term propositions,” he said.

He also believes that the unit market on the North Shore is shaping up to perform strongly over the course of the year.

“With this in mind, it is likely we are approaching an ideal time to invest in the unit market as fundamentals are pointing towards a resurgent market in 2024,” he said.

“The extremely strong growth in unit rentals and, more importantly, demand for these rentals, have helped alleviate some of the pain of increasing interest rates. 

“In additional to this, the fundamentals on the North Shore remain very strong.”

While the strong rental market in the Northern Beaches can make it an attractive area for property investors, with the potential for strong rental yields and long-term capital gains he said.


HTW Director Perron King said while property had remained a popular investment platform with both house prices and rents surging in the past couple of years, investors in the Melbourne market may be in for some tougher times in the short-term from a capital growth aspect. 

“Although the market has slowed, rental demand is still high in Melbourne, creating a great opportunity for investors to make a profit from rental yields,” Mr King said.

Mr King said rental demand had been strong across the city, particularly in the CBD and the south east.

He said the key inner eastern suburb of Box Hill has always been a popular market for investors, many of whom are opting to invest in units and apartments, which currently offer a median yield of 4.5 per cent. 

While the median price for an apartment in Coburg sits at $595,000, which is below the long-term average of $620,000 and is a suburb that has previously seen exponential growth.

Across the western suburbs, Mr King said capital growth had previously been attractive to investors, but it is now experiencing an oversupply of new housing with the development of multiple new estates throughout Tarneit, Truganina, Deanside and Fraser Rise.

Source: Herron Todd White


HTW Director David Notley said historically property investors have tended to follow the fundamentals in Brisbane around location, price point and property type if they want great long-term outcomes. 

“Our inner-city units are finding favour with investors – both local and from interstate,” Mr Notley said.

“High demand for rentals means vacancies are low and rents are rising.”

Mr Notley said rental demand was providing new opportunities for investors in the northern suburbs.

“Up until recently we’d seen very limited investor activity throughout middle to outer suburbs such as Bridgeman Downs and McDowall,” he said.

“Fringe suburbs such as Lawnton and Bray Park and even moving further through to the outer northern corridor such as Burpengary or Narangba are the suburbs where you’ll traditionally see more investor activity. 

“However, there is strong demand from renters, so perhaps investors will be making themselves more known as 2023 progresses.”

Mr Notley said he expected to see rising rents throughout the southern suburbs.

“With plenty of stock available, capital gains will be more limited than in areas closer to the CBD,” he said.

“Still, for long-term landlords, the capital growth picture remains bright.”


With demand remaining strong, South Australia may provide a safe haven for investors in 2023 according to HTW Property Valuer Nick Smerdon.

“Depending on proximity to the CBD, the investor market has historically been driven by rental returns within the outer ring and capital growth within the middle and inner rings,” Mr Smerdon said.

“Rental returns have tightened in the outer ring as price levels increased sharply, however demand for rentals remains at historic highs with Adelaide currently having the nation’s lowest vacancy rate at 0.4 per cent.”

Mr Smerdon said the South Australian market has historically provided purchasers a more stable option than the larger metropolitan markets around Australia. 

“As we move into a national downward property cycle, investors should have confidence in the South Australian market given the strengthening rental market and track record of marginal downward cycles,” he said.


HTW Director Chris Hinchliffe said Perth’s relative affordability, tight vacancy rates and strong economy, continue to make it appealing to property investors.

“Towards the back end of 2022, the Western Australian property market appeared to be far more resilient than many areas in the eastern states, particularly on the back of interest rate hikes throughout 2022,” Mr Hinchliffe said.

“This resilience appeared to be largely driven by investor activity from both local and interstate investors as owner-occupier activity slowed.

“The state is already seeing record low vacancy rates and data like this will only place further strain on the housing shortage across the state.”


HTW Director Terry Roth said the broader market in Darwin remained stable throughout the latter stages of 2022 and into 2023, however, higher rates ahead will put the market under pressure.

“It needs to be noted however that Darwin and Palmerston are still relatively affordable compared to other major capitals,” Mr Roth said.

“I do not believe the rental market to be as tight as some other capitals, however the vacancy rate has hovered around the two to three per cent for the past 12 months, with agents reporting strong demand and multiple applications on well-presented properties. 

“Yields are still strong with properties showing gross rental yields of eight per cent-plus not uncommon in the market.”

He said as other markets around Australia are seeing declines in values, Darwin has not held up. 

“With high rental yields and relative affordability, it continues to be a market that will always attract investment,” he said.


HTW Assistant Valuer Kush Sen said in Canberra, houses have been the traditional investor stock as there was a lack of apartments. 

“Recently however with many new unit developments coming into the market, many of these new units, especially apartments, are being bought by investors and being put on rent when they settle,” Mr Sen said.

“New apartment developments are being bought by investors off-the-plan and offered for rent once the apartments settle.

“Typically for houses, investors are buying in the districts of Belconnen, Gungahlin, Tuggeranong and Queanbeyan. 

“This is due to the price point being lower than suburbs in the inner north and south of Canberra.”


HTW Valuer Mark Davies said in Hobart you are better off looking for investment locations that provide the best return, rather than in a location you want to live.

“Do you buy a rental in a lowish socio-economic area where the weekly wage is stretched already,” Mr Davies said.

“You can pick up a property in the northern suburbs (Brighton, Glenorchy, Claremont, Moonah, West Moonah etc) for under $600,000, but your weekly rental for a three-bedroom house in Glenorchy is currently around $480 to $550 per week.

“Take out all your costs and further possible retractions in the market and your return soon diminishes.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.