Australia’s residential property market is witnessing a sharp slowdown following the federal government's decision to overhaul long-standing tax incentives that have supported property investment for decades. 
The changing sentiment is evident across major housing markets. In Sydney, where strong competition at auctions was once common, properties are increasingly struggling to attract buyers. One recent example involved a five-bedroom home near Bondi Beach listed at AUD 5.2 million (USD 3.64 million), where no bids were placed despite active marketing and a public auction. 
The market response comes after the Labor government announced sweeping tax reforms in the past month. The changes include the removal of the capital gains tax discount from July 2027 and restrictions on negative gearing benefits for existing residential properties. The measures are intended to make housing more accessible for first-home buyers and address growing concerns around intergenerational wealth inequality. 
Since the announcement, national auction clearance rates have fallen below 50%, marking their weakest level since the pandemic, according to property research firm Cotality. Real estate agents across the country have reported lower buyer participation, fewer registered bidders and reduced auction success rates. 
Brisbane-based agent Avi Khan of Ray White said buyer activity had dropped significantly, with audience numbers and bidder participation roughly halving compared to previous months. He noted that auction clearance rates in some markets had fallen to between 30% and 35%. 
The reforms have particularly affected property investors, many of whom are reassessing their long-term strategies. Housing plays an unusually large role in Australian household wealth, with investment firm AMP estimating that around 70% of household wealth is linked to residential property values. 
Australia has more than 2 million investment property owners, representing roughly 10% of the working-age population. According to estimates from the Reserve Bank of Australia, around 70% of these investors own a single investment property, while the remainder own multiple assets. 
Auctioneer Clarence White said investor participation at auctions had noticeably declined following the policy announcement. He observed that owner-occupiers now account for a larger share of active buyers, reflecting the changing dynamics in the market. 
Sydney-based investor Kellie Adamson, who owns two residential investment properties valued at approximately AUD 3 million, said the reforms had completely altered her future investment plans. Instead of expanding within Sydney, she is now considering opportunities outside the city and exploring commercial real estate as an alternative investment option. 
Queensland investor Shaun Craike estimated that the policy changes initially reduced the value of his AUD 6 million portfolio of 10 properties by around AUD 500,000. While he has noticed some stabilisation in recent weeks, he believes the reforms will have a greater impact on newer investors trying to build property portfolios. 
Although investors who owned properties before the government’s announcement will not be affected retrospectively, industry participants believe the new framework will significantly influence future investment decisions. 
The reforms are also expected to affect so-called "rentvestors"—first-home buyers who purchase a property as an investment while continuing to rent elsewhere or live with family. These buyers have traditionally relied on negative gearing benefits to support their investment strategy. 
Property adviser Veronica Morgan estimated that approximately 6,500 rentvestors enter the Australian housing market each year. She noted that many of these buyers may now find it more difficult to enter the market because the tax advantages that supported this approach will no longer be available. 
AJ Clores, a 27-year-old Sydney-based rentvestor with a property portfolio valued at AUD 3.2 million, indicated that he would likely delay further purchases for several years and may only reconsider expansion plans around 2028. 
The tax reforms have arrived at a time when higher interest rates are already weighing on housing demand. As a result, economists increasingly expect property prices to decline further over the coming year. 
Nick Gill of Sotheby’s International Realty in Byron Bay described the current market adjustment as one of the largest corrections he has witnessed during his career. 
SQM Research Managing Director Louis Christopher believes the downturn could continue into 2027. The research firm forecasts that Sydney home prices may decline by as much as 9% during 2026, while Melbourne could record falls of up to 7%. 
Christopher said the prolonged nature of the downturn suggests the market is moving beyond a short-term correction and entering a deeper period of adjustment. While lower prices could improve affordability for aspiring homeowners, he warned that buyers may still face the risk of further declines after purchasing. 
For first-home buyers, however, the reduced presence of investors could create new opportunities. Melbourne resident Devin Familton, who has been searching for a home for the past six months, said reduced competition from well-funded investors could make it easier for genuine homebuyers to secure properties. 
Source Reuters