Sydney auction clearance rates over weekend hit their worst level since COVID. Investors are fleeing. Prices are set to fall. And the Albanese Government is calling it a win for young people. Here’s what the Budget’s property tax bombshell really means for you.
The Federal Budget’s tax changes have spooked the property market, and spin doctors will be saying that this is Stage 1 and Stage 2 of what the Albanese Government wants in an overall strategy to lower the price of your house. Stage 3 is when the price does actually fall.
You see, these changes to negative gearing for existing homes and the new reduction in capital gains tax (CGT) for existing homes has to mean fewer investors will be showing up to auctions. Not surprisingly, the auction clearance rate for Sydney dropped to 49%, a 6% slump from the previous weekend.
House data watcher Cotality told the AFR’s Nick Lenaghan “that it is the worst outcome since auction results were heavily disrupted during the onset of COVID-19 in 2020.”
Another long-term property monitoring expert, Louis Christopher of SQM Research, thinks this is the start of something bad for homeowners. “The tax changes are coming in, hence the reason why the market’s responding the way it has,” he predicts. “I suspect we’re in now for a lengthy downturn in Sydney and Melbourne. It’s going to be a weak market for some time. There’s no sweetener on the horizon.”
In case you need reminding about the Budget changes for property, here they are in a nutshell:
- Negative gearing on residential property is limited to new builds from 1 July 2027.
- If an investor buys an established home after 7.30pm AEST on 12 May 2026, they would no longer be able to use rental losses from that property to reduce tax on other income, such as wages.
- But those losses can be offset against the rental income.
- Those losses could still be deducted against other residential property income, including capital gains, and excess losses could be carried forward for future residential property income.
- Existing property holdings before Budget night are grandfathered.
- From 1 July 2027, negative gearing is proposed to be available only for new residential properties.
- From 1 July 2027, the 50% CGT discount will be replaced with cost-base indexation plus a 30% minimum tax on capital gains, although for new builds investors can choose between the current 50% discount and the new arrangement.
- These new rules won’t apply to self-managed super funds (SMSFs).
- There appears to be a loophole if a principal property is converted to an investment property, negative gearing and the 50% CGT discount would apply.
Of course, these changes are not law yet. But either way, the uncertainty around the new rules for negative gearing and the capital gains tax discount means investors would be less interested in buying existing properties and should turn their attention to new builds.
However, this means the younger buyer will now have to compete with well-heeled investors, who get tax deductions on their loans and a 50% CGT discount!
Meanwhile, existing home prices will fall but will, in many cases, be too dear for the younger buyer.
One big issue that’s totally ignored in this property tax debate is the fact that all potential homebuyers lose 12% of their income to super, which baby boomers didn’t have to cop, but you can’t blame boomers for that.
This country needs more incentives to get more housing stock. And young property buyers should be able to access a bigger part of their super to help bankroll property purchases, but that’s an argument for another day.
For the here and now, property owners should brace themselves for a fall in the value of their homes. Not happy Jim and Albo. Not happy.
As a former property journo, I have long believed in the long term benefits of owning investment property. It took me decades of hard work (I worked my arse off, even holding down three jobs at once) to finally get into the property market. Fortunately my partner and I were able to buy a few investment properties (apartments) over 20+ years. The aim was to have a comfortable self-funded retirement and not be a burden on the pension system/government. We’re fortunate our properties are positively geared (again, a lot of hard work and a small inheritance assisted that), and we have paid (and continue to pay) a bucketload in tax on the rental income. We also knew from the start that we would be paying a fair whack in CGT. We always planned to sell our properties to fund our retirement. Now we’re hastening our decision because we are not prepared to pay additional CGT (it could be $500k more) after July 1, 2027. I am all for helping people get into the property market – however, I do not believe these new taxes / legislation is the panacea. There are a lot of people who won’t be able to afford to pay a property ever, those who prefer to rent long-term, those who won’t be able to buy a property in the area where they work or prefer to live for whatever reason. I feel that Chalmers has really screwed this up. I also feel pissed off that the finger seems to be pointed at the Boomers (I just slip into that category). Those like me, who have just wanted to invest for their self-funded retirement, haven’t done that maliciously. I truly hate the new ‘marketing term’: ‘Intergenerational Inequality.’ I think it’s vexatious and just a vote tactic. Sorry Albo and Chalmers for working my arse off, for aiming for a self-funded retirement without being a burden, for paying a truckload in taxes.
There’s no need to sell any of your properties. The full CGT Discount up until 1/7/27 is locked in. You’ll only pay more CGT on the gains that happen after 1/7/27. If the gain is only as much as inflation, you’ll pay less tax than with a 50% CGT Discount, ie: none. If the gain is more than inflation, you’ll pay some tax, but that’s a great outcome because you just made money by simply not selling that rent producing asset until you really needed to.
I’m not selling any of my properties to fund retirement. I’m keeping them to fund retirement!
Sounds like it’s working already. More properties going on the market for my kids to try and buy. Hopefully less people buying as investments (and choosing other investment options) leaving more properties for families to buy. And even better if prices are falling. Hoping my home drops in value too. Just don’t let overseas investors grab them please.
Didn’t we try this back in July 1985 and then reverse it two years later when Keating was Treasurer. And this was before the CGT 50% discount was introduced.
Typical Labor tactic……pathetic attempt to emulate Robin Hood
They just killed an incentive to work hard, save and get ahead (Socialism)
It is not just the property market they is now screwed , the small business ,entrepreneurial spirit , taking risk for a reward investments approach , new start ups .
This simply put is nothing but a tax grab marketed as if it is make all people equal in poverty and relay on wages and salary for a government that overspending on failed dubious projects and schemes and government bureaucracy waste. Why Aussies need to work harder any more ? No need at all . The new budget is Just encouraging people to relay on handouts and do minimum work if any. This is the new Albo government socialism mantra.
I disagree with Labor on everything till now.
Getting rid of the negative gearing scam which is unique in the world was long overdue. It made the property market into a tax engineering scheme. It deviated capital to unproductive speculative tax driven businesses instead of creating wealth.
And people worldwide invest in property without the negative gearing Australian scam.
Those complaining do it because their cash cow supported by taxpayers is over.
For once, well done. As for the rest of Albo’s government is an abomination. But credit when it’s due.
Thank you Albo and Chalmers for levelling the playing field for my 25 yo daughter who has been working her arse off with 2-3 jobs and is in no position to buy like previous generations. If you want to save for retirement there are plenty of perks in super. (up to a reasonable limit). Or even commercial property. Otherwise stop over inflating a common right to house yourself. Next… airbnb.
“potential homebuyers lose 12% of their income to super”. I don’t agree with this. The 12% is paid BY THE EMPLOYER ON TOP OF WAGES so they are not losing anything!!!
Nice article except that comment that 12% of an income gets lost to super. One wonders if this is truely a sensible way to look at this. Lost to super is hardly fair, as it is in a growth area and subject to only 15% tax.
Super is a growth vehicle not a “loss” with low tax implications. Negative gearing needed to go. As a baby boomer with several investment properties I am sick of my cohort whinging about these property changes. Give the next generation an opportunity to buy their own home. I commend Albo and Chalmers for their bold move in making change
Everybody is ignoring that this the tax changes do nothing for housing supply! i.e combined rented and owned supply. The government has failed to acheive its own supply targets while increased migration has added to demand for housing
While housing prices may decrease a few percent (if supply increases with less investor demand) the flipside will be renters may be worse off as supply to that market reduces with less investor demand.
I find it difficult to understand how based on comments of some that Albanese and his i’ll thought policies have improved access to the property ladder.
For starters bringing in well over 400,000 migrants per annum without sufficient homes and infrastructure is pushing the price of homes through the roof. Economics 101 will tell you when you increase demand significantly, prices go up.
The policy to scrape negative gearing and concessions on CGT will mean a large number of investors who have investment properties will sell, so by definition less properties means rents will rise. The ability then for renters to save for a house deposit will be become mush harder or probably impossible. The stock that becomes available will be mopped up by the increase in population and then some.
In summary cost of living, interest rates and immigration are the 3 major factors making home affordability unaffordable. Until you reduce demand significantly and at the same time increase supply prices will never go down or stabilise. These other issues are at the margin.
Small business owners , innovators investors start ups all provide jobs and keep the economy going.
These are hard working people. Work their guts out a d take risks .
With this draconian budget measuremeasures including death taxes , nobody will have incentives or motivation to work that hard to innovate or to take business risks.
Welcome to the new banana republic!!!
Upfront disclosure, I’m a boomer and I don’t always agree with the government. Peter, perhaps only the top end of the housing market which doesn’t interest the young may be torched.
Negative gearing for any investment be it property, shares, etc, is just wrong and should never have been allowed in the first place. Why invest in something that makes a loss? The savings from this loophole can be used to subsidize rent for those in the society who will never succeed buying, which the government is already doing.
Also, for every property that an investor doesn’t buy is another available for young people who genuinely try very hard to get into a home. There’s always commercial property that investors can invest in.
As for indexation of capital gains, that should be the justifiably proper way of calculating, granted the extra work.