The Property Data Every Australian Investor Has Been Asking For

In this episode of the Follio Property Podcast, hosts Lachlan Delahunty and Reece Beddall discussed the realities of Australia’s major residential property downturn, emphasising the critical importance of wealth protection, knowing your portfolio numbers and stress-testing cash flow rather than seeking speculative quick fixes. The hosts highlighted the launch of version one of their portfolio tracking tool, PropStac One, which helps users model various worst-case scenarios to avoid becoming distressed or forced sellers in a low-liquidity market. They also examined macro data trends and affordability index ceilings across capital cities.

Key Takeaways & Market Insights

• Know Your Numbers and Cash Flow Runway: Property investors must model their monthly portfolio expenses monthly, factoring in interest rates heading toward 7%, to ensure they maintain a 6 month cash buffer and avoid becoming distressed or forced sellers.
• Sydney’s Affordability Overextension: Peaking at an affordability index of 61% in late 2024 to early 2025 (where 61% of an average wage went toward mortgage servicing), Sydney is considered the most overheated market and faces potential corrections approaching 20% or more if interest rates reach 7%.
• Risks of Speculative Regional Assets: Buying into regional hotspots pushed by mass investment groups (such as Albury-Wodonga, Shepparton, Darwin, Moe, Horsham and Davenport) carries high risk because these markets often lack local buyer depth once investors pull out.
• Melbourne’s Relative Resilience: Melbourne remains the most affordable capital city from a median house price perspective, sitting at 36% on the affordability index compared to its historical ceiling of 45%, leaving it with more positive affordability buffers and downside protection.
• Unit Market Resilience: Across several capital cities, units show much higher affordability headroom (such as 45% runway for Melbourne units and 41% for Perth units at a 6.5% interest rate) indicating stronger resilience compared to overextended detached houses.

Prioritising Wealth Protection and Knowing Your Numbers

Investors must focus on wealth protection, avoid losing a single dollar and closely monitor their cash flow runway to survive Australia’s severe residential downturn rather than searching for quick fixes.

“Rule number one, do not lose a dollar. This is where you should start to plan your worst case scenarios.” – Lachlan Delahunty

“Preparation is everything in a downturn.” – Lachlan Delahunty

“If you don’t understand your cash buffers, if you don’t understand your cash runway… how much cash reserves do you have to withstand this storm?” – Lachlan Delahunty

“It’s about knowing your data, your portfolio and having oversight, and checking in on that every month. It’s not an annual event anymore. This is common sense, back to the basics, know your numbers.” – Lachlan Delahunty

Sydney’s Severe Affordability Overextension

Sydney is experiencing the hardest fall among Australian capital cities because its affordability index significantly exceeded historical ceilings, forcing stressed homeowners into distressed sales.

“We’re currently in the midst of arguably Australia’s biggest residential downturn.” – Lachlan Delahunty

“The Sydney Affordability Index capped out at about 57%… now, if we look at the peak, it peaked at 62%.” – Lachlan Delahunty

“61% of the average person’s wage in Sydney was consumed by their mortgage, leaving 39% for the duties of life.” – Lachlan Delahunty

“Why Sydney’s falling like a brick and why it’s falling harder than every other market is because it’s by far the most unaffordable market and was well above its affordability ceiling.” – Lachlan Delahunty

“Where there’s no buyers and you have to sell because the bank is gonna come for your debt, you can see up to 50% discounts. They cannot afford to hold their properties, so they have to sell at a significant discount because it’s not a, ‘I need to sell,’ it’s, ‘I have to sell.’ And they’ve got themselves in a situation where they can’t afford to hold it, and therefore it’s not a 10, 15% discount, it’s a 30% discount.” – Lachlan Delahunty

The Danger of Speculative Regional Assets

Investors should avoid following mass investment group pushes into speculative regional markets like Albury-Wodonga or Shepparton, which lack local buyer depth and leave owners stranded when investor demand dries up.

“A lot of these clients have portfolios and a lot of regional assets, things that we would deem as speculative. They’re overexposed to the wrong markets.” – Lachlan Delahunty

“Don’t go where the masses are ’cause these are the portfolios that you just don’t have a buyer once the investors pull out.”- Lachlan Delahunty

“Shepparton, Darwin, Albury-Wodonga, Moe, Horsham and Davenport… these are areas that people are pushing.”- Lachlan Delahunty

“Now the party’s over, that’s why we come back to the data and that’s the purpose of PropStac so you can know who’s lying and who isn’t, ’cause the data doesn’t lie.” – Lachlan Delahunty

Future Predictions & Market Outlooks

• Interest rates are currently in the sixes and could be closer to 7% by the end of the year.
   
• Sydney is projected to stand out historically as the market that falls the hardest in the downturn, with potential corrections needing to reach 13% to 20% (or roughly a 30% total decline if rates hit 7%) to return to its historical affordability ceiling.

• Markets like Melbourne, Perth and Darwin retain positive affordability buffers and runways (such as 13% for Melbourne houses and 24% for Darwin houses at a 6.5% interest rate), which protects their downside risk compared to overextended markets.

• Unit markets show stronger resilience and depth, with Melbourne units and Perth units retaining 45% and 41% runway respectively at a 6.5% interest rate.

Take Control of Your Property Strategy with Follio

Navigating housing market downturns, rising interest rates and evolving economic conditions across Australia requires moving beyond surface-level trends. Grounding your decisions in research, data and proven investment advice is essential.

At Follio, our advisory team helps clients review their portfolio risk, map out worst-case cash flow scenarios and utilise our in-house PropStac data to navigate challenging market cycles and protect their downside. 

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