It's no surprise that investor finance rose 8.8 per cent in the December 2016 quarter, and owner-occupied housing finance surged 11.1 per cent, when you consider that the ten-year average return for residential property sits at around 8 per cent, says Malcolm Gunning, president of the Real Estate Institute of Australia.

Strong returns are driving high levels of property investment, says Gunning, not negative gearing, which is available to all asset classes.

The latest REIA Real Estate Market Facts report shows the median house price for all eight Australian capital cities increased by 4.1 per cent for houses and 2.1 per cent for other dwellings during the December 2016 quarter.

The weighted average median house price for the eight capital cities was $743,496. 

The median house price increased in all capital cities except Perth and Darwin, said Gunning, which reflects the different performances of the state economies. Perth and Darwin are struggling to recover from the mining slowdown.

Median rents for houses remained steady or increased during the quarter in all capital cities except Darwin, said Gunning. Canberra recorded the largest increase in rents for houses with a jump of 9.5 per cent, followed by Hobart with an increase of 6.1 per cent.

Median rents for other dwellings remained steady or increased in most capital cities except for Sydney, Perth and Darwin. 

The weighted average vacancy rate for the eight capital cities decreased to 2.9 per cent during the December quarter, a decrease of 0.2 percentage points, said Gunning.

Darwin and Perth continue to have the highest vacancy rates at 7.8 per cent and 6.4 per cent respectively.

Gunning said demand for property finance remains strong.

Investor finance rose 8.8 per cent over the quarter, and owner-occupied housing finance (excluding re-financing) surged 11.1 per cent, said Gunning, noting small decreases were recorded during the previous quarter.

The ten-year average returns for residential property range from a low of 6.5 per cent for houses in Perth to 10.5 per cent for two bedroom units in Sydney, with most returns being around 8 per cent, said Gunning.

“The level of investor activity is not unexpected when you consider that ten year average annual returns for residential investment property," said Gunning.

Gunning said the strong returns explain why property investment is so strong in Australia.

The ten-year average returns for residential property "tell us why property is favoured above other forms of investment," he said, noting that "negative gearing is available for all asset classes".

See also:

Investors drive gains in housing finance

REIA launches new course for agents wishing to provide financial information

REIA calls for action on affordable housing and property taxation