But today’s data tends to confirm what I was thinking…

Anybody annualising one or three months movements is just dumb or trying to scare monger the public.

Here’s how I’m reading the market...

• Vendors are pulling their properties when they can afford to hold, buyers on the sidelines are starting to step up.

• Yes, property prices are down but this so far is a healthy correction, part of a normal cycle. Mean reversion taking place.

• As long as employment doesn’t deteriorate too much, we will see inflation starting to moderate next year and prices forming a base for the next upward cycle.

• Yesterdays inflation numbers showed only a 0.2% month to month rise in the trimmed mean, which means the pace of inflation is starting to moderate too.

Great chart as always via the NEOVAL team.

PS: Melbourne is missing from the dataset. I didn’t exclude it intentionally.

I spend a lot of time thinking about the other side. What happens to the cost of delivering the next apartment?

Developers borrow to buy land and fund construction. Higher interest costs add to the bill while the project moves through planning, construction and settlement. Delays make that bill larger. The RBA has acknowledged this pressure on new housing supply.

That leaves us with a difficult problem. Higher rates can weaken demand while also making it harder to build the homes we need.

Our latest Sydney apartment development cost chart looks at this through a simple scenario model. It starts with an assumed cost of $1.049 million per apartment and tests the extra cost from different interest rate and inflation settings over two years.

It is an illustration, not a forecast. CPI is used as a proxy for cost escalation, and actual projects will differ. But it shows how sensitive the numbers can be when a large amount of capital is tied up for a long time.

A project that looked viable when the site was bought may look very different by the time the developer is ready to build. The costs have moved. The price buyers are willing or able to pay may not have moved with them.

This is part of why I’m interested in completed apartments.

They already exist. You can walk through them, inspect the finish, assess the location and compare them with what else is available. Much of the uncertainty involved in delivering a new building has passed, although defects, settlement and sales risks still matter.

That does not mean every unsold apartment is cheap. Nor does a higher replacement cost guarantee a higher sale price. Buyers still have budgets, and some stock remains unsold because the price or product is wrong.

But I think the cost of delivering competing supply deserves more attention when assessing completed stock.

For the developer, there is also a practical decision to make. Sell now and release capital, or refinance and allow more time for the remaining apartments to sell?

Waiting has a cost. Interest, outgoings and selling expenses continue. Capital stays tied up. Sometimes accepting a lower price and moving on is the better commercial decision.

In other cases, a suitable residual stock facility may give a developer room to sell at a measured pace. The numbers need to support that decision, including what happens if sales take longer than expected.

This is the work we are building around at 13x. My experience across Wealthi and Flexdoc has shaped how I look at it. Funding matters, but so does understanding the buyer and the path to a sale.

As I explained, cutting migration may ease future demand. But it won’t help developers build the homes Australia is already short of.

The deeper problem is supply: planning delays, infrastructure bottlenecks and finance settings that make new projects harder to deliver.

I also explained that employment is the single most important thing to watch. Home owners and investors will continue to pay down their loans as long as they have jobs.

But if rates are pushed too high, unemployment will quickly rise and start to impact loan quality for the big banks.

Its not very often we see a sensible housing solution that targets market inefficiencies. But the NSW government might be onto something solid with its Pre-Sale Finance Guarantee program. We’ve reviewed the program, which launched earlier this ear and we’re bringing it to the attention of our property developer clients.

For qualifying residential projects, the NSW government may commit to purchase:

• Up to 50% of the dwellings, capped at $50 million per project.

• Up to 75% of the dwellings in projects with fewer than 20 homes, capped at $30 million.

• Up to 100% of eligible affordable dwellings delivered or acquired by registered not-for-profit community housing providers, capped at $30 million per project.

The $1bn revolving facility is designed to address one of the biggest painpoints in the brand new proeprty cycle - presale commitments which developers need when seeking out development finance.

There are other requirements - for example approval in place, construction possible within six months, indicative lender approval and at least four homes.

While this is the design, I actually think developers will start to see this even as an exit given that the guarantee will take possession of the properties at a 10% discount to valuation. In a falling or flat market, developers are unlikely to bother reselling to removing the guarantee which is an option under the scheme.

Selling brand new property usually comes with marketing and sales costs which could be equal or similar to the price discount anyways. The maximum government commitment value for each dwelling is generally $2 million. This increases to $2.5 million for homes with three or more bedrooms.

So overall, I think this is a really sensible policy that will start to get more market adoption. The devil is in the detail, the guarantee is subject to an asssessment process — we know some basics about the assessment criteria but will wait to see if this evolves or changes.

We also dont know which developers or builders can access the scheme, although the government does provide a basic breakdown of guarantees granted to date based on suburbs and locations.

A step in the right direction and something we will be introducing into our product suite at 13x.

Australia’s residential market is very different to the US for example, which has a mature multi-family component. Delivering housing at scale has been an Australian policy priority, yet the market is chasing its tail with difficult planning, rising building costs, higher funding costs and now a potential liquidty crunch.

Property developers always rise and fall throughout a normal cycle. Recent collapses are not new. There will be other capital allocators who enter the market and seek to generate a return. However this time, private credit will be a lot more cautious in its ability to lend to construction.

I’ve seen first hand the growth of private construction credit in the Australian market since the pandemic. Supply has exceeded demand, leading to credit quality concerns. Not all private credit is exposed to property construction. That is a fair distinction.

However the credit that is exposed will continue to remain problematic.

Developers have chased higher price point markets to make feasibilities stack up. They’ve also baked in rosy sales assumptions, which won’t materialise. Residual stock (our focus at 13x) will continue to rise, epecally where there is no product market fit.

Trading up the curve means they haven’t been adding supply in the lower end of the market, which has drastically reduced supply. But pretending to chase higher end markets will come home to roost too.

Here’s what I expect to see in the next six to twelve months:

• More developer construction loans souring

• Private credit funds exposed to construction limiting redemptions

• Banks back in the market chasing quality developers, winning back marketshare

• Building approvals on paper not materialising into construction starts unless the projects are high quality and from experienced developers

• Limited supply supporting prices as the RBA tames inflation and eventually starts to lower rates next year

• The government going to the next election with a bigger housing problem, having built few houses and fallen short of housing targets

Australia remains a high growth country with strong employment and wealth. Our housing problems won’t be solved until we figure out how to bring on board new supply, in areas where people can afford and want to live.

JB Hi-Fi warned the market that spending started slowing down after the budget. Template & Webster has said similar things. Both these businesses benefit from people moving homes, either renters or buyers.

Lower house prices obviously impact consumer sentiment and the wealth effect — when prices stop rising, consumers who own homes of investment properties start to worry about their wealth and pullback on spending.

But housing turnaround is also being impacted from not just rates, but a very messy budget that has thrown uncertainty into the market.

When the housing market slows down, turnover also slows down. Less movement is bad for business activity. It impacts retail, real estate and lending. The big four banks have all come out in recent weeks and said their loan applications to investors are down around 15-30%.

I expect to see this trend continue, but also show up in lower owner occupied activity as sellers hold onto their homes going into the spring season. A few bad loans have caused a massive concern for Judo Bank (a business lender) in recent months. This is before more widespread business losses start to flow through.

Business cycles are normal. This is nothing new. My focus is on what happens next. The RBA has cautioned rate rises are possible. I see it very unlikely. High rates are already choking the economy. Government sentiment is negative, further adding fuel to fire.

In a weird way, the government has done some of the RBA’s job by causing uncertainty, confusion and denting investor sentiment.

This is a generalisation, not every sector is doing it tough. Trades, infrastruvture, health and the data centre industry are all growing very strong. Mining and energy will continue to see strong investment flows.

For housing, its important to remember that cycles are normal. They don’t last forever, income is important and new supply will continue to remain constrained even further if prices remain soft, providing a natural floor.

Over the past decade, most of my work has sat somewhere between property, finance and investment. Through Wealthi, I’ve worked with residential developers and investors and through Flexdoc, I’ve spent more time on lending, understanding how banks and non-bank lenders assess property and credit.

The more I’ve worked across both sides, the more one problem has stood out: residual stock.

A developer can spend years getting a project through planning, construction and completion, settle most of the apartments and still have millions of dollars tied up in the final portion of unsold stock. The building is complete, construction risk is largely behind them, but the capital is still trapped.

The problem we are building 13x around.

Residual stock finance, sometimes called development exit finance or completed stock finance, allows developers to refinance debt secured against unsold completed apartments or townhouses. It can reduce holding costs, release equity and give the developer more time to sell.

But I don’t think developers simply need another lender.

Transitional capital to build more housing

The real question is broader: what is the best way to release capital from the completed project?

Sometimes the answer is refinancing. Sometimes the existing bank debt is already competitive and should be left alone. In that case, the better solution might be selling a small tranche of apartments, finding a block buyer, releasing equity or combining finance with a strategic stock sell-down.

That is why I see 13x as a residual stock platform rather than just a residual stock lender.

Our approach is to understand the entire residual position: remaining stock, debt, lender release prices, holding costs, expected sales velocity, buyer demand and the developer’s next capital requirement.

The part I find most interesting is the information created through that process.

Two completed developments can have the same valuation and the same loan-to-value ratio but very different risk. One might contain highly liquid apartments that can clear quickly. Another might contain stock that has already been marketed heavily and is difficult to move.

A valuation tells you what the property may be worth. It does not always tell you how quickly that value can be converted into cash.

That is where I think 13x can build a genuine advantage.

Every residual stock transaction teaches us more about what sells, what doesn’t, how different lenders price risk, which buyers emerge and how long stock actually takes to clear.

Over time, that knowledge should make us better at both credit and exit execution.

Building on existing knowledge

We are not starting from zero. Our team already has experience across residential property, mortgage finance, investor distribution and developer relationships. 13x brings that knowledge together around one narrow problem.

The ambition is simple: become exceptionally good at helping residential property developers release capital from completed projects.

Today that means residual stock finance, equity release and strategic stock sell-down.

Over time, I believe it can become much more.

If you are holding completed stock or approaching construction facility expiry, you can request a confidential funding review through 13x

When the market is hot, everybody forgets about the cycle. Nobody feels like a slowdown is coming. But that’s also true when the market is weak, like it is today for Australian residential property.

This ancient wisdom helps us form an important investment principal known as “mean reversion”. Over the course of the cycle, investment returns will revert towards their mean (also known as average).

We’re also going through a normal credit cycle, where risk starts to get re-priced. These cycles can be wider in time frame, maybe 10-15 years. Its important to remember that the Covid era, zero interest rate environment, created a lot of market inefficiencies which need time to flush out.

Private credit has a lot of problems hidden under the bonnet, particularly in construction lending. They will eventually come out and the market will start to price risk more appropriately.

That will create opportunities for the patient investor. I spoke a few weeks ago about the prestige market looking attractive, other markets will start to open up in coming months. There will be light at the end of the tunnel, but we probably have a little further to go before the bounce starts to resume.

I joined Ausbiz today for my monthly discussion about the property investment market. The Australian government announced a ban on residential borrowing inside self-managed super funds (SMSF) since my last interview.

I think this will further impact brand new property development, as a lot of these SMSF investors were also buying into brand new projects. Something the government needs to consider when weighing up the cost/benefit analysis.

I also spoke about three key areas of the property market that I think will do well over the next year. One of these includes the prestige property market, which has recently seen large price falls. It could bottom soon as investors look to trade up into more expensive homes in order to avoid capital gains tax.

Full interview here (you need to log in to watch, its free).

I recently caught up with Ray White Chief Economist, Nerida Conisbee, in a new podcast episode released today. Nerida has a great vantage point, she’s a seasoned economist that sits within a group that is responsible for one in seven properties sold across Australia.

She blends macroeconomics with property reality and has a live pulse into the property market, mostly thanks to the agents within her network that represent vendors and landlords.

Our conversation touched on the budget, the unintended consequences of Landlordism which could emerge in Australia (like the United States), foreign investors and why young people feel left out of the prosperity process in Australia.

Finally, I asked her which segments of the market she’s seeing perform well. Her answers will surprise many.

I recently sat down with my good friend Michael Bogoesvki in our latest podcast episode. Mike has a great vantage point, having started as a quant trader, before moving into fintech and derivatives.

He was with CMC markets as they grew to become a dominant player across the Asia Pacific region throghout the past twenty years. He is now advising clients, mostly in the micro and small cap space.

We discuss what he learnt from servicing some of the world’s largest institutional clients and how investing has changed in the post-covid world. Particularly with the liquidity tap being left permananently open, by global central banks.

Flexdoc has been focusing on the self-employed property finance space over the past year. We’ve intentionally called this the “self-made” market, which describes entreprenuers a little more accurately than “self-employed”.

I wrote a review when we rebranded last year and wanted to provide another update now that the business is maturing and starting to focus on its key niche areas.

SMSF Property Finance

One of the things that become clear is many self-made professionals are now looking at buying property and seeking finance in their SMSF (self managed super fund).

On our estimate, there are now more than 660k SMSF investors in the market, most of them wanting to take take control of their retirement savings.

Our research shows that direct property is now among the top three asset classes in the SMSF space - cash, shares and direct property round out the top three.

We suspect potential changes to capital gains and negative gearing tax rules will make SMSF investing even more popular.

Flexdoc Key Focus

So we’ve decided to focus and make this our key niche. Our SMSF property finance focus helps investors in three key areas:

1. Residential property finance

2. Commercial property finance; and

3. Complex SMSF structuring, usually for business owners with irregular contributions

Our goal is to work with advisors, not around them. This is a regulated area, which requires care and attention.

We want to raise the standard and ensure that investors opting for property inside their SMSF, with an LRBA, do it with the best possible care among all their stakeholders.

Learn more about our SMSF offering here.

I was recently back on air with veteran journalist Andrew Geoghegan and his team at Ausbiz, discussing the current investment landscape heading into the budget. My key message: investors are the solution, not the problem, with regards to housing.

Here's what we covered:

• Australia is the ultimate safe haven

• Property tax changes are about deflecting blame

• We're not addressing the real issues driving housing

• Investors are the solution, not the problem

• Foreign investors have been shut out, limiting sales channels for developers and in turn hurting rental supply

• We need wholistic tax reform, not piecemeal

Watch Full Interview

The full video interview is on Ausbiz website, which you can access here. You’ll need to log in to watch, but there aren’t any charges and its free.

I’ve recently launched a new Podcast series called Make Your Move, which is powered and sponsored by Blueberry Markets. We’ll be exploring different investing topics over the next few weeks from a range of guests.

New brand, new guests - some commitment to investing principles that I’ve been writing about for the past decade.

In this week’s episode, I chat with Phil Tambya from Blueburry to discuss the current state of the crypto markets, how payments and money as we know them are changing.

We distinguish between the use case for crypto payments from the speculative nature of crypto asset prices, now in excess of US$2.5 trillion in market capitlisation.

If you prefer to listen in audio, click here.

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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.