Economy – Future Prospects
Navigating economic trends for ADF property investors
Understanding the economic outlook
For Australian Defence Force (ADF) property investors, understanding the economic outlook is essential to making smart investment decisions. As we write at the end of 2024, the Australian economy is at a crossroads. With a steady inflation – now under 3% – and unemployment rate of 4.1% here in Australia the future prospects for the Australian economy are promising.
However, factor in global uncertainties and the outlook looks slightly less auspicious. In this post, we’ll examine the relevant global and Australian economy and what the future prospects mean for your property investment strategy.
At Capital Properties, we understand the unique challenges and opportunities faced by ADF members. As we approach the end of the year, it’s the perfect time to review your financial goals. Is your portfolio performing as you’d expected? Are you positioned for success in 2025 and beyond? And are you up to date with what’s happening with the economy and how that affects your future prospects?
If you’re not answering “100% yes” to these questions, then book in for your FREE Capital Properties Discovery Session and gain access to our Property Investment Tools & Apps and Pinnacle Support Program.
On the go? Here’s 30 seconds of take outs:
- Inflation is currently steady at under 3% & unemployment is low at 4.1%.
- Global economic growth is slowing, with risks from geopolitical tensions & policy changes in major economies like the US & China.
- Consumer confidence is improving as interest rate hikes pause, but borrowing costs are still high.
- Consumer Price Index (CPI = measure of inflation) is easing but rising Producer Price Index (PPI) signals ongoing cost pressures.
- Many Australian property markets retain a steady growth, particularly in regional and outer suburban areas. ADF investors can take advantage of: strong property prices, interest rate reductions & rental demand.
- Key trends to watch are sustainability in property, infrastructure development & population growth/migration.
Keep reading >>
Global influences on the Australian economy
The global economy has faced significant challenges over recent years. From the Covid 19 pandemic disruptions to geopolitical tensions – i.e. Russia vs Ukraine, war in the Middle East, and the return of Donald Trump to the Oval Office (which could potentially alter our relationship with China) – it’s all feeling rather tumultuous.
The latest World Economic Outlook from the International Monetary Fund (IMF) shows that global economic growth is steady but slower than hoped, with risks leaning toward things getting worse. There’s a predicted slowdown in major economies like the US and China. So we’re likely to see the effects of inflationary pressures, central bank interventions, and fluctuating trade dynamics. However, because Australia is blessed with valuable natural resources, we benefit from the global demand for energy, minerals, and agricultural goods. This should be enough to ensure our economy remains resilient.
In the RBA Board September Monetary Policy meeting, when discussing the relationship between Australia’s monetary policy settings and global central banks they said “Members agreed that, while it was important to take account of economic developments abroad, it was not necessary for the cash rate target to evolve in line with policy rates in other economies, since Australian inflation was higher, the labour market stronger and monetary policy less restrictive than in many other advanced economies. The exchange rate could also adjust as interest rate differentials between Australia and other economies evolved.”
Australian economy – future prospects
According to the Australian Industry Group (AIG), economic growth is expected to be modest over the next two years. Gross domestic product (GDP) growth is likely to stay around 1.6%, potentially improving slightly to 1.8% in 2025. The AIG attribute a decline in business investment, housing investment and export growth to this stall of economic growth. They also emphasise that “one of the principal factors dragging on the Australian economy is inflation. Despite some recent improvements, it is proving stubbornly difficult to bring under control.”
We’ll take a closer look at where we’re at with inflation in the next section…
It does seem however that lower interest rates have finally started to boost consumer spending. In November 2024, the Westpac–Melbourne Institute Survey of Consumer Sentiment Index (which measures changes in the level of consumer confidence in economic activity) showed that consumer confidence reached its highest level in 2.5 years. This was mostly because households were reassured that interest rates wouldn’t rise further. Although, to be fair, overall confidence is still relatively low and many households are still struggling.
According to recent Australian Prudential Regulation Authority (APRA) data, around 35,000 Australian households are unable to repay their mortgages. That represents approximately $23 billion in loans – a figure that’s doubled since 2016 – so it paints a grim picture.
What’s happening with inflation in Australia?
Consumer inflation – measured by the consumer price index (CPI) peaked at 7.8% per year in late 2022. Thanks to a slowing economy and 13 (almost consecutive) interest rate hikes, we’re now closer to the target 2-3%, sitting at 2.8%. It is, of course the Reserve Bank of Australia (RBA)’s job to monitor inflation and we know they’re aiming for a steady target of 2-3%. And, if you’re sitting there wondering what inflation has got to do with property investment – have a quick read of our blog post “What is the relationship between inflation and interest rates?”.
But as well as monitoring CPI, we also need to take the Producer Price Index (PPI) into account. The PPI tracks business costs and unlike the CPI, it’s unfortunately rising again – now sitting at 4.8% per year. And we can’t blame global issues like supply chain problems and energy costs like we did in 2022. Inflation is now mainly caused by local issues. Prices for goods traded internationally are rising slowly at 1.5% per year, but non-tradable items like services, which are affected by wage increases, have much higher inflation at 5% per year.
The future prospects for inflation still look challenging. The Treasury predicts that inflation will stay above target for another year, and the RBA expects it could take two years. This means interest rates probably won’t drop as soon as many would like. And that means that borrowing will stay relatively expensive and living costs are likely to remain higher than we enjoyed pre-pandemic.
What the economy – future prospects mean for ADF property investors
As an ADF member, you’re in a unique and pretty privileged position. Your steady income and Defence Force housing entitlements offer remarkable financial security. And with the Capital Properties team in your corner, you can navigate changeable economic conditions with greater confidence. Despite all the uncertainties in the current and future economic landscape, we’ll help you look at the factors that might impact your property investment opportunities:
- Property prices
Despite the economic turbulence in the last few years, the Australian property market is showing great resilience. Housing trends indicate steady growth in high-demand areas, particularly in regional and outer suburban locations. ADF personnel can take this advantage of this by staying up to date on housing trends. Our blog post “Australian housing trends” is a great place to start.
- Interest rates
With inflation easing and interest rates stabilising, it’s predicted that we’ll see interest rate reductions in early to mid-2025. Lower rates could mean more affordable borrowing, allowing you to expand your property portfolio. And utilising government and Defence Force grants can get you there even sooner. Check out our blog post “Buying a house while in the defence force” for more details.
- Rental demand
The rental market remains tight, with vacancy rates still maintaining historic lows. This trend is likely to continue for some time, providing strong rental yields for property investors. For ADF members, this can translate into additional income streams while posted elsewhere.
Trends to watch if you’re thinking of investing in property in 2025 (& beyond)
To stay ahead in the property game, it’s essential to keep abreast of what’s happening in the market. Here are several key trends we’ll be monitoring:
- Sustainable property
In Australia, the Federal Government works with state and territory governments to develop cohesive regulations through the National Construction Code (NCC). That includes regulations around sustainability and energy efficiency. There are fundamental procedures that must be adhered to – such as the Deemed-to-Satisfy (DTS) elemental provisions for energy efficiency (Section 13 of the Housing Provisions). The good news is that getting on board with eco-friendly features in your investment property is very likely to increase property value and attract long-term tenants.
- Infrastructure development
Keep an eye on areas that are, or will be, benefiting from infrastructure upgrades. Projects like new transport links or schools can significantly boost local property values. For example, the upcoming Western Sydney Airport has sparked interest in nearby areas like Badgerys Creek. New roads, business hubs, and residential developments are underway. Getting in early and investing in areas with projects like transport links or schools have the potential of strong capital growth.
Plus, thinking outside the box, for example investing in commercial spaces, can also pay dividends. Read our November 2024 blog post “Industrial warehouse office conversion” to hear about our experience with re-developing a commercial space.
- Population growth and migration
Australia’s population is growing steadily. Driven largely by migration, which accounted for 81% of the country’s growth in 2023 according to the Australian Bureau of Statistics (ABS). Regional areas are also experiencing an influx, as migrants and locals alike explore opportunities outside major cities. This increases housing demand, opening up potential opportunities for property investors.
Capital Properties: supporting ADF property investors
We know that a career in the ADF doesn’t always allow you the indulgence of time to keep up with what’s happening with the Global or Australian economy. And the knock-on effect on the property investment market. That’s why the expert team at Capital Properties are here to guide you. With years of experience working alongside ADF members, we understand your needs and goals. We’ll help you navigate the economic landscape so that you can build a secure future and achieve financial freedom.
Book your FREE Capital Properties Discovery Session and/ or follow up with the Switched-On Strategy Series now.
Note: This information is general advice only. Always do your own research and seek independent financial advice
