The outlook for property in a near-zero interest rate world

CIO MONTHLY | MARCH 2021

Zero policy rates in Australia and offshore are likely to provide more impetus to rising asset prices than rising consumer prices in the year ahead. While we have closed our underweight to domestic sovereign bonds in the wake of a rise in yields, we still favour returns in equity over fixed income. Other than equities, we believe property (residential and non-residential, listed and unlisted) is likely to be an increasing beneficiary of low rates. This month, we take a look at the outlook for property markets.


  • Key drivers of the rapidly improving residential housing outlook include near-zero interest rates, record low mortgage rates and the unfolding strong rebound in Australia‚Äôs jobs market. For residential property, house price forecasts have been on the rise, with CBA raising its house price outlook to 14% over the next two years. Risks to the outlook centre on the return of macro-prudential lending rules, a renewed pandemic lockdown, or an inflation surprise.
  • Within commercial property, industrial and logistics assets are our preferred long-term exposure, while traditional retail is widely considered the most vulnerable as it continues to face headwinds from the transition to online shopping. The office sector sits somewhere in the middle. As the work-from-home theme plays out, high-quality, well-located offices may become increasingly important.
  • Although the longer-term impact of COVID-19, once populations are vaccinated, remains subject to debate, the very low cost of capital does not. Offshore investors will continue to be attracted to Australian non-residential real estate assets, given the attractive yields on offer. Within unlisted property, when measuring the current spread between property yields and bond yields, Australia stands out as particularly attractive versus other major developed markets. For listed property, dividend yields remain attractive relative to bonds, and Australia is lagging the global index year-to-date.