At a macroeconomic level, we’re seeing general recovery with confidence subsisting or returning to most markets. However, this recovery comes with significant asterisks. The primary risks we’re monitoring are inflation persistence and geopolitical instability, both of which have the potential to derail the positive momentum we’ve observed in recent months.

The surprise inflation figures from October 2025, which showed CPI accelerating to 3.8% p.a., well above the RBA’s target band of 2–3%, have fundamentally shifted the interest rate outlook. We’ve moved from an expectation of further cuts to a consensus view that the next move is likely to be up. History tells us that first moves in either direction tend to be followed by several more in the same direction, suggesting we may have reached the floor in this cycle.

For Ark, this shift requires careful navigation. While rate increases flow through to our investors via our hedged lending structures, the real risk lies in their potential impact on market confidence and asset values. However, we believe this risk is relatively contained. Australia’s sticky inflation is primarily driven by positive fundamentals: historically low unemployment, reasonable wage growth, strong immigration, and a chronic housing undersupply. These aren’t the ingredients of a demand-side collapse.

Australia’s economy continues to be fundamentally driven by population growth. The federal government forecast net overseas migration of 260,000 for the 2025 financial year, but actual figures came in above 300,000, resulting in total population growth of approximately 420,000 when births and deaths are factored in. We expect 2026 to deliver similar numbers.

What makes these figures compelling from a real estate investment perspective is the supply-demand imbalance they create. At the peak of population growth, Australia was adding over four people per new dwelling completed. Current forecasts suggest this has dropped to around three, still well in excess of the average of 2.5 people per dwelling. This structural undersupply isn’t just a temporary phenomenon; it’s an ongoing crisis that continues to exacerbate with every passing quarter.

The state-level dynamics are equally important. While NSW and Victoria attract the largest intake of net overseas migration, net interstate migration tells a different story. Queensland and Western Australia both post positive net interstate migration, while all other states are negative. This internal redistribution, driven by relative affordability and strong employment markets, creates distinct opportunities across different jurisdictions.

Southeast Queensland remains a high-conviction market for Ark, with residential land and medium-density development as our key focus areas. The ongoing population growth from both overseas and interstate migration provides sustained demand, while the investment and confidence driven by the 2032 Olympics continues to provide a structural tailwind. Our main concerns centre on a potential affordability ceiling on housing values and cost escalation given the significant construction activity across the region.

Adelaide continues to present compelling opportunities, particularly in residential land and medium density. The state benefits from reasonable population growth and one of the most attractive business environments in the country. The state’s economy will see further support from defence spending related to the AUKUS nuclear submarine project. Similar to Queensland, affordability ceilings and construction cost escalation represent the primary risks.

Western Australia offers continued opportunity in residential land and medium density. Perth and key regional markets benefit from strong interstate migration and an economy underpinned by significant mining revenue. The housing sector has stabilised after earlier market corrections, and we’re seeing renewed confidence in development activity.

New South Wales remains a high-conviction market. Our key sectors are residential land and medium-density development. Policy settings, combined with continued strong overseas migration and Australia’s biggest employment market, create a supportive environment for selective opportunities.

Victoria requires a more cautious approach. While the state has strong ongoing population growth, it continues to suffer from extremely low confidence across most sectors. Ironically, this confidence collapse is creating investment opportunities in the residential sector through relative affordability, particularly where construction costs have stabilised.

One of the sectors we’re increasingly attracted to is built-form medium-density residential, specifically townhouses and smaller-scale apartment developments. Where land has been secured on the right terms, these developments are producing robust feasibilities within acceptable risk parameters.

Three factors are converging to make this sector increasingly attractive: faster planning pathways in established areas, stabilised construction costs, and an affordability advantage over detached housing. We expect to see more opportunities in this sector throughout 2026 and beyond.

A key theme in 2026 will be further regulation from ASIC for private credit fund managers. We expect increased responsibilities around transparency of reporting, valuations, and governance. We’re already looking at how we can continue to improve our processes and governance in the areas ASIC has highlighted, applying our core value of investor first and always seeking to lead rather than follow.

Against this backdrop, Ark remains confident and focused on the residential sector. Southeast Queensland, Adelaide, and Western Australia remain our primary focus, although NSW and selective opportunities in Victoria will also feature in our investment activity.

2026 will be a year that requires selective navigation, disciplined risk management, and a clear-eyed view of where structural demand meets attractive risk-adjusted returns. For Ark Capital, that means staying focused on our core competencies in residential land and medium-density development, maintaining our rigorous underwriting standards, and continuing to put our investors first in everything we do.

If you’re an investor, borrower or strategic partner who values forward-thinking leadership, now is the right time to connect.

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