Inflation, income growth and migration will deliver the most impact on the Australian property market this year according to Wealthi, an investment property company in Sydney.

“We saw some tremendous growth in property prices over the past two years. Will we see a repeat of these heady price rises? A lot will depend on these three major factors as we progress into the new year,” said Domenic Nesci, co-founder at Wealthi.

According to Nesci inflation remains the key concern for property buyers. With inflation comes the possibility of interest rate rises, which is becoming more of a given as central banks reconsider their policies.

What happens when interest rates rise?

Nesci said, “Homeowners don’t have the luxury of rent income.  They may find it difficult to repay their mortgage once rates go up. But investors will have income coming in as rents are expected to rise.”

Rent rises on the cards

Nesci also pointed to some property market data that shows the positive impact of interest rates for property investors.

“There’s no doubt that interest rates will go up in time. But property prices may also go up as a result,” Nesci said.

Based on market data, rent usually goes higher than inflation or interest rates.

“Another indication of the potential for rent increases is that we haven’t seen substantial rent rises over the past few years,” Nesci said.

As domestic and international borders open, Nesci said migration – students coming back to Australia, demand for accommodation from tourists – is a key factor to watch.

“The student population has always been a big market for rental properties. And with international students returning, this will push the demand for rental properties.”

According to Nesci, some builders and developers are already reporting increasing demand for units and townhouses.

“Some builders are holding on to their stock (not selling them straight away) in anticipation of the rise in demand for rental properties,” Nesci said.

Why are builders keeping their stock instead of selling them immediately?

Nesci said rent increase in the long-term is a much better result for property investors.

At the same time, if mortgage rates go up, this can tighten the supply which will ultimately push rental prices higher.

Originally published by Domenic Nesci, co-founder at Wealthi