The Australian housing market faces a critical six-week period following the government's property tax changes announced in the May budget, with early data showing price declines in Sydney and Melbourne. Economists warn that investor pullback could accelerate price falls, though the long-term outlook remains uncertain.
In the three weeks after the negative gearing and capital gains tax changes were revealed, housing data shows a reversal of modest price gains seen in early May. Sydney and Melbourne, the country's two largest markets, have gone negative, with clearance rates dropping below 50% for the first time since the early pandemic.
AMP chief economist Shane Oliver forecasts a 5% hit to prices over 12 months due to the tax changes, while Treasury expects a two percentage point drag over two years. Commonwealth Bank economists say the market reaction has been faster than expected, increasing the chance of a sharper near-term slowdown.
Investors, particularly active in NSW where they take out over 43% of housing loans, are pulling back. Sydney's low rental yields make the investment thesis less attractive without negative gearing. Domain's chief of economics Nicola Powell notes that budget changes have 'completely morphed investment decisions,' pushing investors towards positively geared homes.
Tim Lawless of Cotality says clearance rates were already easing before the budget due to rising interest rates and the oil crisis, with the budget amplifying negativity. Price falls will not be uniform, with areas of high investor activity in Sydney, Adelaide, and Brisbane expected to see larger declines, while homes popular with owner-occupiers may hold value better.
The coming weeks will be crucial in determining whether the market stabilises or enters a sharper downturn, with interest rates, housing supply, and population growth remaining the primary drivers of prices, according to CBA.
