Falling property prices can make investors nervous. But falling prices don’t necessarily mean the fundamentals of a market are deteriorating.
Australia’s current housing market is a good example.
Across the combined capital cities, dwelling values fell 4.3% over the September quarter, while rents remained 5.5% higher than a year earlier, according to analysis from Ray White Chief Economist Nerida Conisbee.
At the same time, Australia continues to face a shortage of new housing, with construction costs elevated and dwelling approvals running below the level required to meet national housing targets.
For investors considering property investment in Canberra and the NSW South Coast, the important question therefore isn’t simply whether prices are rising or falling today.
It’s whether current prices accurately reflect the longer-term balance between housing supply, rental demand, borrowing conditions and the cost of creating new homes.
Why Can Property Prices Fall During a Housing Shortage?
It seems contradictory: Australia needs more homes, yet property values can still decline.
The explanation is largely about credit.
Higher interest rates reduce how much buyers can borrow. When borrowing capacity falls, buyers have less money to compete for property, which can put downward pressure on prices even when the underlying demand for housing remains strong.
Across the combined capital cities, dwelling values fell 4.3% during the September quarter.
But the rental market is telling a different story.
Rents were still 5.5% higher year-on-year, highlighting the continuing pressure on Australians trying to secure housing.
For investors, this distinction matters.
Property prices are heavily influenced by credit conditions in the short term. Housing demand and rental performance are also influenced by how many people need homes compared with how many suitable properties are available.
Those forces can move in different directions at the same time.
Australia’s Housing Supply Problem Hasn’t Disappeared
The supply side makes the situation even more interesting.
According to Conisbee’s analysis, the cost of a new dwelling has increased by approximately 48% since the end of 2019. New dwelling prices were also 5.4% higher over the year to August.
That creates a significant hurdle for developers.
When established property prices soften while labour, materials, financing and construction costs remain high, new developments can become harder to make financially viable.
Australia recorded 18,202 dwelling approvals in August, below the approximately 20,000 approvals per month required to deliver the national target of 1.2 million new homes over five years.
That creates a difficult cycle.
Higher interest rates can reduce established property prices. Lower established values can then make new developments less attractive or viable. Fewer developments mean fewer homes entering the market, potentially intensifying an existing supply shortage.
For long-term investors, understanding that cycle is far more useful than reacting to a single quarter of property price data.
What Does This Mean for Canberra Property Investors?
Canberra deserves particular attention because investors need to assess it as its own market rather than assuming national or Sydney trends apply equally to the ACT.
For someone considering Canberra property investment, softer market conditions can potentially provide greater negotiating power than investors have during highly competitive growth periods.
However, a lower purchase price alone doesn’t make a property a good investment.
Investors should examine the depth of tenant demand, competing housing supply, the type of dwelling being purchased and its appeal to future owner-occupiers.
This becomes particularly important when comparing apartments, townhouses and detached houses. Two properties in the same postcode can produce very different long-term outcomes depending on scarcity, land component, competing development and the demographic they appeal to.
The objective shouldn’t be to find the property that has fallen the most.
It should be to identify quality property where short-term market weakness may have created a gap between today’s price and the asset’s longer-term fundamentals.
What About Property Investment on the NSW South Coast?
The NSW South Coast requires the same level of selectivity.
Rather than treating the entire coastline as one property market, investors should assess individual towns and regional centres according to employment, population movements, infrastructure, rental demand and the amount of housing that can realistically be added.
Property type matters here too.
A property that primarily relies on holiday or discretionary demand may behave very differently from a well-located home serving permanent residents and long-term tenants.
For investors considering NSW South Coast property investment, rental availability and future housing supply should therefore form part of the due diligence alongside purchase price and historical capital growth.
Limited construction can support existing housing values over time, but only where there is sustainable demand for those homes.
Lower Investor Activity Could Put More Pressure on Rents
There is another important dynamic investors shouldn’t overlook.
Investor activity has weakened following changes announced in the May Budget.
Fewer investors can reduce competition for established properties, potentially contributing to softer purchase prices.
But there is another side to the equation.
If fewer investors purchase rental properties, and fewer new properties are being constructed, the pool of available rental housing may struggle to keep pace with tenant demand.
That can put additional pressure on rents.
It’s another example of why investors need to look beyond headlines about property prices.
Where Is the Property Investment Opportunity?
Current conditions potentially favour investors who have the borrowing capacity, sufficient cash flow and patience to hold a quality property through the market cycle.
Softer prices can provide opportunities to negotiate more aggressively. But investors shouldn’t interpret that as a reason to buy indiscriminately.
The stronger opportunities are more likely to be markets and properties displaying a combination of:
- Tight rental supply and sustainable tenant demand
- Limited competing new construction
- Established demand from both investors and owner-occupiers
- An appropriate purchase price relative to the property’s fundamentals
- Sufficient rental income and cash flow to make holding the asset sustainable
For Canberra and NSW South Coast investors, that means analysing individual suburbs, towns and properties rather than trying to time the entire Australian housing market.
Focus on the Fundamentals, Not This Month’s Headline
Property markets rarely move in a straight line.
Prices can weaken while rents rise. Construction can slow while housing demand remains elevated. Investor activity can decline even while the underlying rental shortage becomes more severe.
That’s why a long-term investment strategy needs to consider four fundamental forces: credit, supply, demand and rental pressure.
Current conditions may create opportunities for investors who can separate short-term price movements from long-term housing fundamentals.
The key is buying the right property, in the right market, at the right price, and having the financial capacity to comfortably hold it through different stages of the cycle.
Want to Know How Your Portfolio Is Positioned?
If you already own investment property, changing market conditions are a good reason to review what you hold. That’s not necessarily to sell or buy, but to understand how each property is performing and whether your portfolio remains aligned with your long-term strategy.
iStrategic’s Free Portfolio Review can help you assess your existing properties, identify potential gaps and consider where future opportunities may fit within your broader investment strategy.
Book your Free Portfolio Review with iStrategic.
About the Author
Aiden Haworth is the Founder and Managing Director of iStrategic, a property investment firm helping Australians build high-performing residential portfolios.
With more than a decade of experience across property investment, development and capital raising, Aiden has led negotiations on developments valued at more than $100 million and helped secure funding for sites generating multi-million-dollar profits.
Since 2020, iStrategic’s client portfolios have averaged 15.89% annual capital growth and a 7.04% rental yield. Aiden is also an active property investor and applies the same investment principles to his own portfolio that he uses with clients.
Learn more about Aiden and iStrategic on the About iStrategic page.
Disclaimer
This article is provided for general information and educational purposes only and does not constitute financial, investment, legal or tax advice. Individual circumstances vary, and you should seek appropriate independent professional advice before making investment or financial decisions.
Frequently Asked Questions
1. Is Canberra a good place for property investment?
Canberra can offer property investment opportunities, but investors should assess individual suburbs and property types rather than treating the ACT as one market. Rental demand, competing supply, purchase price and long-term owner-occupier appeal should all be considered.
2. Is the NSW South Coast a good area for property investors?
Parts of the NSW South Coast may offer opportunities where there is sustainable housing demand, tight rental supply and limited new construction. Investors should assess individual towns carefully because market conditions can differ significantly across the region.
3. Why can property prices fall when Australia has a housing shortage?
Property prices are strongly affected by borrowing capacity. Higher interest rates can reduce how much buyers can borrow and therefore what they can pay, causing prices to soften even when the underlying supply of housing remains limited.
4. Do falling property prices create opportunities for investors?
They can. Softer conditions may give financially prepared investors greater negotiating power. However, a falling price doesn’t automatically make a property a good investment. Rental demand, supply, cash flow and long-term growth fundamentals still need to support the purchase.
5. What should property investors look for in the current market?
Investors should consider credit conditions, rental demand, existing and future housing supply, construction activity, property type, owner-occupier appeal and their ability to comfortably hold the property through changing market conditions.