Tesla and BYD drivers are having the last laugh (after years of being ridiculed). Your author being one of them.

Many developed economies have also been diversifying their own energy resources. The US is now a net exporter, having learnt important lessons from previous shocks. Australia is leveraging its LNG position as the Saudia Arabia of the Pacific.

Oil was trading at very low levels before this shock, particularly relative to gold and silver. So there was a bit of complacency around before this shock, but important lessons learned for the future.

My key focus over the past week has been elsewhere. I’ve been thinking about the real estate ramifications of this war, particularly on the Australian residential market.

Property prices during oil shocks

In 1973, OPEC cut oil supplies and the price of crude roughly quadrupled overnight. Inflation in Australia surged to 17.6%. Mortgage rates doubled from roughly 5.9% to 10.4%.

By every normal measure, property should have collapsed.

Instead, Sydney median house prices almost doubled from $18,700 in 1970 to $36,800 by 1976. Across the five major capitals, values rose between 34% and 83% over the same period.

When oil spiked again in 1979 after the Iranian Revolution, Australia tipped into a recession with high unemployment. Property still came out the other side stronger. And it's kept happening.

Black Monday, the dot-com crash, the GFC, COVID. Even during the GFC, the most severe financial shock in modern history, Australian house prices rose 6 to 12% between 2008 and 2011 while the ASX dropped 30%.

Supply likely to get worse

The key driver holding up prices will be the impact to supply. I’m already starting to see feedback from my industry contacts suggesting building material costs are rising, due to freight disruptions. This will likely continue in coming months. Its systemic and will get built into the cost base.

The second factor is funding costs for developers, another 50bpts to funding will further distress the feasibility of many projects, many of which were already on thin margins.

Despite all the government rhetoric, state and federal, we are still yet to see any meaningful increase to housing supply in Australia relative to our demand needs.

So while demand might soften, supply will soften more, supporting house prices at current levels.

25,000 Aussies in the UAE

Another factor worth considering is the repatriations. DFAT estimates around 25,000 were living in the United Arab Emirates prior to the conflict and up to 100,000 Australians across the Middle East region. I suspect a large portion of them may come back home and bring their mostly tax free wealth back with them.

This could add further demand into the market, offsetting the margin investor who is priced out from rate rises.

In the episode, James and I discussed:

• Potential changes to property taxes and why I think they aren’t the right solution

• Gen-Z’s relationship with property and why we must solve for their dissatisfaction by increasing supply

• Property, shares, and commodities like gold and how they relate to each other

• SMSF investing and AMP’s move into this space

• Areas of caution and some listener Q&A

If you haven’t already, I suggest you subscribe to this podcast channel as James and his team produce some great content with various guests each week. I hope you enjoy the episode.

As commodity prices rise, I’m getting increasingly positive on Australia. I’m biased, of course. But I’m not the only one. If you want a long conversation about why Australia is very well managed, you should check out this one.

All the key ingredients that make Australia a commodities powerhouse are heading in the right direction. Gold, silver and copper prices are booming. Our currency is cheap, while our fiscal situation remains strong compared to Northern Hemisphere peers.

There’s also a change in the political climate. Presently driven by anger, but will bring about a much-needed change. Australians are generally apathetic when it comes to politics, which can lead to lazy policy. Recent events have forced many who didn’t care to raise their voices.

Politicians, from all sides, are on notice.

I think this will lead to a big shakeup in the way we design policy. Hopefully, it leads to more productivity. I hope that we won’t waste the fruits of the next mining boom, as we have previously.

If we do the next 5-10 years right, it could set us up for the next 50-100.

Australia’s fiscal position remains strong, our trade position improving, our banking system prudent and our real estate market strong. You only need to look at Canada to see how bad their market is doing. Our proximity to Asia is our biggest asset.

I’m positive and think Australia will remain a great place to buy long-term assets like residential real estate. We have room for fiscal investment. I hope we see policy around boosting the regions (airports) and less around density. That will open up the market for a lot more opportunity.

One of the biggest surprises last year was just how sticky inflation remained, particularly towards the second half of the year. I must admit I got my inflation timing wrong. It’s held up more than expected, and I had previously thought that it would remain a rearview problem.

It seems like inflation will stick around for a little longer, so a different gameplan for investors emerges this year.

1. The way gold and silver have continued to run up in recent months gives us clues. A further indicator to me that investors are starting to price in higher inflationary expectations. I think those who buy gold are really just substituting one type of money for another. Silver is more speculative, like crypto.

2. The gold run suggests more inflation in coming years, particularly if we price inflation in dollars. Currency debasement continues to be a multi-generational theme. The US and all other developed economies are running up large debt amounts, because they can always print more of their own currencies.

The consequence is inflation and lingering inflationary expectations. And that’s where we find ourselves in 2026. At a crossroads between sluggish economic growth but a flight away from paper money into hard assets.

3. Australia’s residential real estate market remains well-placed to benefit, as long as the government stays out of the way. The biggest risk to Australian property prices is taxation. Even if negative gearing incentives are eventually changed, the fundamentals behind demand and supply and the growing debasement of dollars will continue to push property prices higher.

4. 2024-25 was driven by affordable markets rising in anticipation of interest rate cuts and government incentives. If rates stop falling, 2026 will be a different game. More middle and premium markets will start to move, as they tend to have the tightest supply and the largest pools of wealth circling.

5. I’m also cautious on the bottom end markets because government incentives might be pared back, especially the Home Guarantee Scheme implemented in October last year which hasn’t made housing more affordable for first time buyers, instead the opposite.

6. 2026 will see a flight to quality and a consolidation in the bottom end of the market. Income growth will be the key driver and I’d be trying to stick to markets within 10km of all the major metro CBDs where rental growth will become the single most important indicator of price growth. Rental growth, not yields, but actual growth in rental income. This is the gameplan in 2026.

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I’ll be posting more content this year, so make sure you Subscribe to get each note delivered directly to your inbox (if you haven’t already). I’ve also got a new podcast series in the works, with a major sponsor working through some final details before we launch towards the end of the first quarter.

State and Federal governments continue to talk about planning changes, yet the reality on the ground is more and more project delays as developers and builders struggle to make the numbers work.

Residential real estate now represents around $12 trillion in value. Gains are across the board, however the most affordable floor price markets are the most popular and have seen the biggest gains. I’ve written about this several times in recent years.

Crowding out

Investors, first home buyers and now increasingly more SMSF investors are all chasing the same type of property - sub $1m price points in major metro areas.

Now that single dwelling houses have moved above this price point, apartments are starting to rise. We think this trend will continue into 2026. It’s no longer about preference, rather necessity.

There’s perhaps another factor at play that many have overlooked. The Australian stock market has been lacklustre in performance and in its ability to attract serious listings over the past decade. We have one of the most boring stock markets in the developed world.

While the US forges ahead with the world’s most innovative companies, our public markets have been slowly dying.

According to ChatGPT (who never gets anything wrong, right?) new ASX listing volume has fallen roughly 70–80 % from its earlier averages.

Active investing is dying

My good friend Ninus Kanna recently wrote a great note about the death of active markets investing and the rise of passive investing via ETFs. Ninus and I started our careers at Huntleys’ (which later become Morningstar) writing stock market research.

Our bosses would edit our notes with red ink and sometimes send back their version by hand or fax. They eventually started using Microsoft Word and tracking changes.

Our office was above the stock market, where punters would gather daily to watch the bourse. It was all about being active and finding gems. Stock market investing was a ‘skin in the game’ business.

Today, it’s all about passive, index ETFs and low cost fees. A race to the bottom, driven by price. Not conviction.

For investors who want to roll their sleeves up and put their money to work, property has continued to grow as an alternative. Particularly in their self-managed super funds (SMSF).

Growth in SMSF property

We estimate that of the more than 644k SMSF structures in Australia, around 15% have some type of direct property. With Labor shelving proposed super legislation, that number could continue to rise in coming years. Lenders like AMP are looking to get back into the SMSF lending market.

I recently caught up with Jared Zak, who runs one of Australia’s largest conveyancing companies, to explore SMSF lending further. According to him, around 70% of his SMSF clients are looking at buying either brand-new property or in Victoria. Again, entry level, where there is value.

I’ll have my 2026 outlook for you before Christmas. If you haven’t already, I encourage you to subscribe so that you can get each update once we release it to our readers.

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PS: I never use AI to write my notes, I do however ask it to check my spelling and tell me if I’ve written anything silly.

While hard assets are seen as an inflation hedge, so are real assets.

I’ve always preferred residential real estate to gold for two key reasons. The first is property gives me income, gold doesn’t. In fact, gold has negative income because you need to spend money to store it (security). Residential property gives me monthly rent and that rent is providing a tenant a home to live in, which has a productive use for the economy.

The second reason I like residential property over gold is because of leverage. Gold has risen around 270% in Australian dollar terms over the past 10 years. The average Australian house has risen by only 75%. But most investors don’t buy houses with 100% cash, they use gearing, usually 80%.

Gearing is accepted because property provides income, which can service the debt.

If we assume a $100,000 investment in gold 10 years ago and $100,000 into an average Australian house (average across all cities) with 80% gearing, the capital gain on gold would be worth around $270,000 while the equity on property is worth around $375,000. Mostly because of gearing.

This is a simplistic calculation, for example if you invested in high quality Sydney real estate in affluent locations, you would have done much better and if you invested in regional areas, you would have done worse.

But the point is that investing is about income growth, capital growth, leverage, and drawdowns. Sure, gold can be leveraged, but that leverage comes with strict drawdown limitations which can be subject to liquidation on market falls.

Leverage on gold also has interest costs, which can’t be offset by rent.

With residential property, it’s usually a set and forget strategy, as long as vacancy rates stay strong and capex is reasonable.

It’s also not an either/or. You can do both, but it’s important to understand that not all that glitters is gold. Sometimes other assets glitter, like property. What matters is why gold is rising and given those reasons, what else is likely to do well also.

Pick your lane, focus on the fundamentals and ride out the short term.

Shutdowns in the US are nothing new, they happen regularly. There have been around 21 funding dispute shutdowns since the modern budget concept was introduced. The longest shutdown was 35 days during the previous Trump administration in 2018.

After each shutdown, the party resumes with more debt, more money printing and more of the same. So while everybody is expecting this time to be the same, I think we could be in for a surprise.

This shutdown could last longer than expected and bring with it a wave of concern, especially with stocks are record high valuations. Here is my quick audio note on the topic.

If a US shutdown does turn into something more problematic, you can rest assured that the US Fed will be encouraged to cut rates faster than expected and that will change the trajectory for the RBA too.

Gold, silver, stocks, crypto and real estate are all rising strongly because the trust in government, regardless of country, continues to diminish.

One of the deals that recently caught my eye was Charter Hall’s recent purchase of Chullora Marketplace for $145m. I think it’s a great deal because of the land value, mix of existing tenants and leasing upside.

Chullora is one of those inner-Sydney suburbs that doesn’t get the glitz of its neighbours, but benefits immensely from the billions of dollars in infrastructure investment happening around it.

Also, the fact that the big end of town is back in the market doing these commercial deals sends confidence that will flow through the market.

I usually talk about residential property because that’s where my businesses are positioned, but commercial is equally important.

Convenience retail has been hot, as have been suburban speciality centres. Industrial and warehousing is consolidating after a strong few years. Office is still in the doldrums, bouncing but with some big question marks.

As interest rates fall, commercial deals will increase and that will flow through into the rest of the market. Confidence typically comes from the top and flows down.

We’re already seeing sentiment bounce in the residential space and with confirmation of green shoots in commercial, the market is well positioned for 2026.

In my audio podcast this week, I discuss the slowdown in the US economy and how that will open the door for more rate cuts next year. If you haven’t already, subscribe on Spotify to make sure you get each episode as it’s released.

The scheme has been in operation for a few years, allowing first time buyers to borrow up to 95% without paying mortgage insurance. The scheme previously had price and income caps.

Under the changes, the price caps have increased to $1.5m for Sydney (and different for each other city) while the income caps have been completely removed. That means first time buyers can now access the scheme without any income limits.

In reality, those on super high incomes will probably have more than a 5% deposit or already be in the market. The scheme is most likely to attract around 70,000 participants in its first full year post changes.

This has come at the same time as interest rates are being cut and housing supply remains at depressed levels.

My sources in the property market are telling me that there has been an immediate bounce in sentiment with more buyers in the market, even though the changes don’t come into effect until October.

In this week’s audio podcast episode, I discuss the impact on the market and the areas I think will do best in terms of pricing.

It’s not ChatGPT. Google is implementing AI into workspaces and android devices. Meta is on a hiring spree, X is breaking benchmarks, and the rest of the world is catching up.

One of the things I’ve noticed is the use of AI in financial analysis and planning. You no longer need to go to an expensive advisor or planner and pay thousands of dollars, wait for weeks and sift through a hundred-page document.

You can do your personal finance, stock market investment, real estate investment and business planning inside your AI with excellent precision and speed.

I explore the implications of this in my latest audio episode below.

I expect to see more individual investors using AI to build a basic investment framework and research system, previously unaccessible and expensive. The world is changing, and the performance gap between those who use AI for their investments, and those who don’t, will continue to wide.

Not necessarily prices falling, just less activity. I first wrote about the freeze in US housing construction in early 2023. This week, one of the world’s largest construction material companies, James Hardie (an Aussie success story) came out with worse than expected earnings. Hardies earns most of its money in the US, and it cited slower than expected US building volumes.

At the same time, Warren Buffett, one of the world’s most watched investors, is slowly buying up builders and material companies. He probably thinks the US Federal Reserve will continue cutting rates, which will encourage building and construction activity.

I discuss this in my podcast this week, below the audio.

That’s where the real story lies for me. The US is likely to continue cutting rates because the housing construction is weak. The data is showing us activity is slowing. The best investor in the world is indirectly telling us he expects a turnaround. That all means rate cuts in the US.

The US needs to stimulate building activity, and the only way to do that is with lower interest rates. The housing market is the business cycle in the US.

Rate cuts overseas will mean rate cuts everywhere else, including Australia. Depending on how deep US cuts are, that could also mean a stronger Australian dollar, with more money flowing here as the US dollar trade winds back.

Good news for Aussie investors in 2026. Real estate prices are likely to continue rising the mining and materials could cushion any pullback on banking and financial stocks, balancing things out. Go Australia!

I look at the arrears trend. These are loans which are late but not yet in full default. Westpac’s numbers show 90-day arrears are trending lower, which is a good sign for the housing market. They’ve fallen from 0.86% to 0.75% — which means 99.25% of mortgages are in a reasonably good shape.

Same story with 30 day arrears. Employment is strong, property prices are stable and rates are coming off a little.

The balancing act seems to have paid off for the RBA, reducing inflation while maintaining the financial system is strong. If you’re a geek like me and want to see the full Westpac profit numbers, they’re here.

While many may cringe at the record profits of the big banks, I actually think it’s a positive. A strong banking system is good for everyone. It’s good for the millions of Australians who own banking shares in the superannuation funds.

And it’s especially good for everyday property investors who rely on credit to finance their investments.

The key property markets I think do well next year are those where population, investments in infrastructure and employment is growing. I break this down further in my recent podcast episode, explaining how each of these components impacts property prices over the long term.

We’ve been getting proposed outcomes drip-fed to the media over the past couple of weeks. One example is the cashflow tax proposal to replace corporate tax. While there are no concrete outcomes yet, in my view, it’s clear the government will use these roundtable recommendations to shape policy heading into the next term.

Property investment will be a key area to watch. At some point, the generous tax settings around negative gearing will tighten. I don’t necessarily have an issue with that—if it’s well communicated and designed to drive investment into productive assets like new housing, which Australia badly needs.

Australia’s current tax rules for property investors are far more generous than those of global peers. It’s true, we do need to improve productivity and direct more capital into productive use.

The problem is, what productive assets will investors shift to? Probably back to commercial property.

Regardless, now is a smart time to build your property portfolio, if you have the means, before any new changes are introduced and grandfathered in. Just like investors who bought before the introduction of capital gains tax in 1985.

When changes to negative gearing or property taxes do come, they’ll likely be grandfathered. It probably won’t happen overnight, though never say never. Governments usually give markets forward guidance before moving on major legislation, and they’ll likely take any big reform to the next election.

So while negative gearing changes aren’t imminent, the Labor government will likely use the Productivity Commission roundtable to test the waters. They’ll be emboldened by their recent success with superannuation tax changes, which won strong support at the last election.

Bottom line: This note might surprise some, as it could seem like I support changes to negative gearing. It’s not about my preference, it’s about reading the signs. As an investor, I’m looking ahead at the likely spillover effects these changes could bring to the market.

We have a great system. Better to use it than miss the opportunity. If you’re going to panic about negative gearing changes, panic now and buy, while you can still do something about it.

We work with a lot of property investors and often look at where they are buying, or thinking of buying, their next property. Our experience in this industry has led us to focus on one key driver that moves property prices higher: population growth.

According to research from KPMG, around 41,000 people (mostly younger) left Sydney over the last year because it's become too expensive. They're moving to areas where they can get the same quality of life, if not better, for less money.

Brisbane, Perth and Canberra are obvious options. Strong jobs and much more affordable housing.

We've written about this previously and refer to it as the Quality of Life Arbitrage.

Yet despite the flood of people leaving Sydney, here is the real catch: around 120,000 new migrants came to Sydney during that period, offsetting the 41,000 that left. That is why Sydney remains the premier real estate market in Australia.

Bottom line: The good news is Sydney's rise is pushing people into new markets, with new opportunities emerging. Adelaide, Brisbane, Canberra and Regional NSW/Victoria. As interest rates fall, it’s a great time to be thinking about growing your portfolio if you're in a position to do so.

Reach out to our team to discuss your property plans over the next year and see how we can help turn your goals into reality.

We touched on some great topics, including the key areas I think will outperform across Sydney, like the Sydenham to Bankstown metro line.

We touched on my outlook for interest rates (this was before the last cut, which I predicted in the episode) and how I generally think about real estate investment. Particularly for long term wealth creation.

Finally, I share the greatest piece of investment advice ever given to me in this episode. A great chat with a great group of friends. I hope you enjoy it.

This episode is live on Spotify, click the embed above to list or if you prefer to open it in your Spotify app for a better browsing experience, click here.

They know growth is stalling, and the household sector is under real pressure. But they held last week to avoid looking too soft on inflation, while global central banks are still split on timing. It’s a credibility game.

Under the hood, the data says it all. Productivity is dead flat. Real wages aren’t improving. Capex is sluggish. The rate cuts aren’t a matter of if, but when.

They’re holding back to avoid triggering another speculative surge, especially in property, but the underlying economy is screaming for easing.

I’d expect the RBA to follow once the Fed cuts. They don’t want to front-run global easing, but they’ll join once the first move is made. It’s coming.

In this episode, I explore the Quality of Life Arbitrage and the factors that, over a medium time horizon, drive up property prices in new and emerging areas where families and young professionals are drawn to.

I also share which areas I think will become attractive in the coming years.

This episode is live on Spotify, click the embed above to list or if you prefer to open it in your Spotify app for a better browsing experience, click here.

I look at the motivations behind these changes, how superannuation can remain fair and competitive, and what changes are likely to be made to the bill before it passes parliament.

This episode is live on Spotify, click the embed above to list or if you prefer to open it in your Spotify app for a better browsing experience, click here.

During the conversation, I explain the interest rate cycle and his view that rates are going to continue coming down as the underlying economy slows down.

I also broke down my key investment principals, when it comes to buying real estate, including key strategies to implement when building a long term portfolio.

Investors are coming back into the market, looking for opportunity, particularly in the sub $800k price point markets. The smart money is moving early. Cautiously. Quietly. Confidently.

We recently caught up with Aras Labutis from Coronation Property to talk about the state of the Sydney development market and new projects they have in their pipeline.

Aras comes from a planning background. We spoke about how planning isn't just paperwork, it’s about unlocking value. The right zoning turns dead land into thriving neighbourhoods. That only happens when you understand the rules well enough to bend them without breaking them.

Sydney isn’t short on land. It’s short on imagination and speed. Aras sees time as the biggest killer of good projects. Every delay adds cost. Every change adds risk.

And yet, his team keeps building. Merrylands. St Peters. Ashbury. Places reshaped from the ground up. With gyms, saunas, coffee, and life built in from day one — not as an afterthought. That's the future.

This is the last episode in the Sophisticated Investor series. We’re working on a new series in June, which will continue our commitment to bringing you the latest content and insights to help you manage your property investments.