Australia’s 2025 Real Estate Outlook: Growth, Challenges & Opportunities

Australia’s 2025 Real Estate Outlook: Growth, Challenges & Opportunities

As we move deeper into 2025, Australia’s property market is navigating an evolving landscape shaped by interest rate adjustments, supply constraints, affordability pressures, and shifting buyer sentiment. KPMG’s latest residential and commercial property outlooks provide a roadmap for investors seeking to position themselves advantageously in this environment. Below, we unpack the key forecasts, sector-level trends, and strategic takeaways for property investors.

 

 

1. National Price Growth: A Stronger Forecast

In its updated August 2025 outlook, KPMG has raised its forecast for national house price growth in 2025 to 4.9%, up from its earlier projection of 3.3%. Meanwhile, KPMG expects unit (apartment) prices to grow by 4.5% in 2025.

For 2026, the forecast moderates a bit: house prices are expected to rise by ~4.5%, and unit prices by ~5.1%.

The upward revision reflects earlier-than-expected interest rate cuts, improved buyer sentiment, and renewed demand across capital cities. (Source KPMG Assets )

 

 

2. Interest Rates & Buyer Sentiment

One major catalyst for the upgraded outlook is the Reserve Bank of Australia’s (RBA) early rate cuts in 2025, which have bolstered confidence and improved borrowing conditions.

Still, affordability remains a key constraint. House prices continue to outpace wages in many markets, prompting more buyers to opt for units, townhouses, and attached dwellings as more accessible options.

KPMG anticipates that unit price growth will outpace house price growth in many areas due to this accessibility factor. (Source KPMG Assets+1 )

 

 

3. City-by-City Dynamics & Market Divergence

While national numbers are useful, much of the opportunity (and risk) lies in the differences between capitals and regions. Some highlights:

  • Melbourne has shown signs of rebound in 2025, supported by lower base prices compared to other major capitals and ongoing demand from interstate/foreign buyers.

  • Sydney, Adelaide, Perth, and Darwin have also been strong performers, often leading in growth within their segments.

  • Affordability remains a bigger issue in Sydney and Melbourne, constraining further upside unless demand remains strong or supply tightens further.

In many markets, growth is expected to accelerate in the second half of 2025 as rate cuts stabilize and confidence returns. (Source KPMG Assets)

 

 

4. Supply, Approvals & Construction

One of the chronic challenges in the Australian property market is housing supply lagging behind demand. KPMG forecasts ~160,000 new dwellings per year in 2025–2026, which is still ~30% below the national target under the National Housing Accord.

While approvals have picked up — especially for units — completion delays, materials cost inflation, labour shortages, and regulatory hurdles mean it will take time before new supply fully hits the market.

In terms of costs, KPMG notes that construction material price growth has moderated — in recent periods, material costs rose only ~1.6%, with quarterly growth even flatter. (Source KPMG Assets )

 

 

5. Commercial Real Estate & Sector Shifts

Beyond residential, KPMG’s Commercial Property Market Update (June 2025) suggests a cautious optimism.

  • The office sector remains under pressure, though signs of stabilization are emerging. Some asset classes have bottomed out, and demand in high-amenity locations is showing resilience.

  • Industrial / logistics sectors are gradually normalizing after years of elevated growth. Rent growth may soften as new supply comes online, but tight zones and premium locations will still perform well.

  • Overall, KPMG predicts modest GDP growth (~1.3% in 2025, improving to ~1.8% in 2026), mild inflation, and a gradual easing in interest rates.

These economic base assumptions provide the background that will support real estate activity in various asset classes. (Source KPMG Assets )

 

 

6. Key Risks & Headwinds

When crafting investment strategies, it’s important to weigh potential disruptions:

  • Affordability stress: If prices rise too quickly relative to incomes, buyer demand may stall or shift further toward smaller property types.

  • Rate volatility: If inflation or global pressures force rate hikes, the downside could erode some growth expectations.

  • Construction delays & cost pressures: Material, labour, and regulatory constraints could throttle supply just when it’s most needed.

  • Regional & macro divergence: Some regions or submarkets may lag or underperform, even if national trends look favorable.

  • Policy & taxes: Shifts in foreign investment policies, land tax, or state-based property regulation could influence investor behavior.

 

 

7. Strategy: How Investors Should Position Themselves

Given KPMG’s outlook and the evolving dynamics, here are strategic moves to consider:

  • Favor units, townhouses, or attached dwellings in high-demand locations — they often offer more relative growth and accessibility.

  • Focus on areas with supply constraints — inner suburbs, transit corridors, or regions where approvals are tighter.

  • Use rate buffers in underwriting: stress-test with higher interest rates to ensure sustainable cash flows.

  • Diversify across states to reduce exposure to localized risks.

  • Keep a medium-term horizon (3–5 years) — short-term volatility may arise, but the growth tailwinds remain.

  • Work with local development partners, planning experts, and property managers to gain edge in execution.

 

 

Final Thoughts

KPMG’s updated 2025 outlook paints a cautiously optimistic picture of the Australian property market: growth is expected to be solid, though not explosive, and underlying demand-supply imbalances continue to favor well-located assets.

For investors, the opportunity lies in smart entry points, geographic diversification, and rigorous underwriting. With the right strategy, 2025 could be a year to position for sustained returns into 2026 and beyond.