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Property Research
Property Research
A comprehensive analysis tracing the transmission from the largest oil supply disruption in history through inflation, interest rates, construction costs, and equity markets to Australian residential property.
Core Thesis: The Iran conflict has triggered the largest oil supply disruption in history. Oil prices have doubled, pushing inflation sharply higher, and the RBA has already raised rates consecutively to 4.1%, with further hikes likely this year. In the short term, buyers are adopting a wait-and-see approach, transaction volumes are contracting, and the lower-to-mid market is under pressure. However, over the medium-to-long term, surging construction material costs + persistent new housing supply shortfalls + rising rents actually reinforce the scarcity value of existing quality properties. Short-term pain is inevitable, but the structural supply shortage will not be relieved by a war — it will be intensified.
This is not remotely comparable to previous Middle East conflicts.
On February 28, the US and Israel launched joint airstrikes on Iran (Operation "Epic Fury"), killing Supreme Leader Khamenei. Iran retaliated by blockading the Strait of Hormuz — through which 20% of the world's oil and vast quantities of LNG transit daily. From March 4, oil tanker traffic plummeted 70% before approaching zero.
The IEA's (International Energy Agency) assessment: "The largest supply disruption in the history of global oil markets" — exceeding the 1973 Oil Crisis, the Gulf War, and the Russia-Ukraine conflict.
The defining characteristics of this crisis: a supply-side shock with an extremely long repair cycle and a very broad transmission chain. Even if a ceasefire were declared tomorrow, restoring energy infrastructure, repricing shipping insurance, and rebuilding supply chains would take months to years.
Many assume that as a resource-rich nation, Australia would be insulated. The opposite is true.
Real-world impact is already underway:
"This is unprecedented — never before has an energy shock of this magnitude hit the globe at this speed. Fuel supply may decline by 15% over the next six weeks, with very serious consequences."
— David Llewellyn-Smith, Chief Strategist, MB SuperThis is the most direct transmission channel to property: Oil prices → Inflation → Interest rates → Mortgage costs → Purchasing power
Australia's CPI reached 3.6% in the December 2025 quarter, with January monthly inflation at 3.8% — well above the RBA's 2-3% target band. Economic growth was also running hot, with Q4 GDP at 2.6% annualised, exceeding expectations. The RBA already had grounds to raise rates.
Rule of thumb: every 10% increase in oil prices adds approximately 0.4% to inflation. Brent moving from $60 to $100+ equates to an additional 2.5-3 percentage point upward pressure on inflation.
On March 17, the Board voted 5:4 to lift the cash rate to 4.1% (following a rise to 3.85% in February). This is the first consecutive rate hike since mid-2023, directly reversing two of last year's three rate cuts. Governor Bullock explicitly stated: the hikes are not purely due to oil prices; underlying inflation was already too high; the Middle East situation has reinforced the Board's assessment of upside inflation risks.
Financial futures markets currently price in 2-3 further rate hikes in 2026, with the peak cash rate potentially reaching 4.35%. Most of the Big Four banks expect another hike in May. RBA Deputy Governor Hauser warned last week that prior estimates of inflation returning to target by end-2026 may need to be revised upward due to the oil price shock.
| Rate Expectations | Late 2025 View | Current View (March 2026) |
|---|---|---|
| 2026 rate direction | 2-3 cuts | 2-3 further hikes |
| Year-end cash rate | ~3.1% | 4.1-4.35% |
| First rate cut | Early 2026 | Possibly not until late 2027 |
Mortgage Impact: On a $600,000 loan, the move from 3.6% (last year's low) to 4.35% increases monthly repayments by approximately $270, adding ~$3,240 per year.
This transmission chain is less visible, but its long-term impact on the property market may be the most profound.
Oil prices are pushing up construction costs through three channels:
Construction is the most transport-intensive industry — aggregates, cement, steel, and prefabricated components all rely on long-haul trucking. Rising diesel prices directly increase delivered material costs across the board.
Bitumen (roads/roofing), PVC piping, insulation, and waterproof membranes all derive from crude oil refining. When oil prices rise, these materials rise in lockstep.
Steel, cement, and brick production are inherently energy-intensive. Combined with electricity prices already up 23.6%, production costs for concrete, cement, plasterboard, bricks, and copper are under pressure across the board.
Even before the conflict, construction costs were already accelerating:
With the oil price shock layered on, a new round of cost increases in construction materials is highly likely in H2 2026 — particularly for bitumen, steel, cement, and all diesel-transport-dependent categories.
What does this mean for existing property holders? Rising replacement cost = your existing property is becoming cheaper and more attractive relative to "the cost of building an equivalent new dwelling". This is the hidden force supporting established property values.
The stock market's indirect transmission to property cannot be ignored.
Clear sector divergence: energy stocks are benefiting while consumer, property, and import-dependent industrial stocks are under pressure. Schwab's analysis suggests that even if military operations conclude quickly, the impact on growth and inflation will persist for 6-12 months.
Impact on property: Shrinking stock market wealth → reduced confidence among high-net-worth buyers → short-term suppression of the prestige market and investment activity. However, equity market turbulence may also drive some capital from stocks toward property and other "real assets" as a safe haven.
Transaction volumes will most likely contract — buyers tend to pause decision-making during global shocks. But the underlying supports remain intact: population growth, immigration inflows, and severe housing undersupply. Cotality data shows that following the February rate hike, price growth actually accelerated in several cities, demonstrating that the supply-demand imbalance remains the dominant force.
The lower-to-mid market faces the most pressure (highest sensitivity to borrowing capacity), while blue-chip areas and supply-constrained regions will show greater resilience.
If the conflict persists for several months (which currently appears more likely), with Brent sustained above $100, inflation could surge to 4.5-5%, forcing the RBA to raise rates to 4.35% or higher.
But simultaneously: a construction cost spiral → fewer new builds → higher scarcity premium on existing properties → continued rent increases (more people deferring purchases + historically low vacancy rates) → improved cash flow on investment properties.
CBA's latest forecasts of Brisbane +12% and Perth +15% for the year remain unchanged. The structural factors of supply-demand tightness + economic momentum + population inflows have not been altered by the war.
Capital Economics forecasts Brent could return to ~$65/bbl by year-end. Inflation pressure eases, and the RBA may begin cutting rates from mid-2027. The property market experiences a V-shaped recovery as pent-up demand is released.
Stagflation risk rises — economic contraction paired with persistent high inflation. Highly leveraged peripheral markets may see meaningful price corrections. However, core areas maintain relative stability, underpinned by land scarcity and rental income support.
Under either scenario, the fact that Australia's 1.2 million home target is severely behind schedule will not change — and will in fact worsen due to rising construction costs and the wave of builder insolvencies.
Rather than specific investment advice, here are several frameworks for thinking through this environment:
Ensure your portfolio can withstand a further 50-75bps of rate increases. This is not panic — it is risk management.
In a rate-hiking cycle, cash-flow-positive properties are far more resilient than those relying purely on capital growth.
In a climate of fear, some buyers exit the market. For prepared investors with capital strength, negotiating power may actually improve.
The core logic of Australian property has never been oil prices — it is: population growth × insufficient supply × land scarcity. All three are reinforced, not weakened, by this crisis.
Potential CGT discount changes (from 50% to ~25%) and negative gearing policy adjustments in the May federal budget could have a more direct and lasting impact on investors than oil prices.
This crisis is still developing rapidly. Just yesterday, Israel struck South Pars — the world's largest gas field — and Iran retaliated against Qatari and UAE facilities, sending the LNG market into fresh turmoil. This is far from over.
Panic is not a strategy; data is. In the short term, watch interest rates. In the medium term, watch inflation. In the long term, watch supply. And on the supply side, conditions will only get tighter.
Foresight Property Research • Brisbane
Translated from the original Chinese-language analysis. This article is for informational purposes only and does not constitute financial advice.