The Complete Guide to Australia’s Property Market
FY 2025–26 Recap & FY 2026–27 Outlook
−3%
Sydney CY2026
price forecast
−4%
Melbourne CY2026
price forecast
−20%
Projected drop in
transaction volumes
1 Jul 27
Tax reform
effective date
Australia’s property market is undergoing one of its most significant structural resets in decades. Over the 2025–26 financial year, the market shifted from rate-cut optimism to inflation-driven caution. Now, the landscape faces a major transformation following the historic property tax overhauls introduced in the 2026–27 Federal Budget.
With exactly one month remaining in the 2025–26 financial year, this comprehensive guide synthesises data from the CoreLogic Housing Market Updates and macro-economic analysis from Westpac IQ Economics to break down how we got here — and project exactly where the market is heading next.
📈 The FY 2025–26 Quarterly Breakdown
The past twelve months have been a story of two halves: a booming opening driven by early rate-cut stimulus, followed by an unexpected economic slowdown as inflation and policy changes took hold.
Q1 — Jul–Sep 2025
Peak Growth Phase
Driven by rate cuts & surging investor demand
Q2 — Oct–Dec 2025
Supply Surge Phase
More homes on market; first signs of softening
Q3 — Jan–Mar 2026
Rate Hike Shock
RBA hikes twice; confidence evaporates
Q4 — Apr–Jun 2026
Policy & Correction
Budget reforms hit; auction markets drop
🟢 Q1 (July – September 2025): Peak Growth Phase
- Rate-Cut Stimulus: The financial year opened with aggressive buyer activity, capitalising on three consecutive interest rate cuts executed earlier in 2025.
- Skyrocketing Investor Demand: Driven by positive economic sentiment, new mortgage lending to investors surged to 40.6% of all market activity by September.
- Mid-Sized City Surge: Perth, Brisbane, and Adelaide heavily outpaced the national average, propelled by interstate migration and chronic inventory shortages. Tight rental vacancy rates also pushed first-home buyers into the market for units or newly constructed homes.
🟡 Q2 (October – December 2025): The Supply Shift
- Surging Property Listings: A massive influx of stock hit the market, highlighted by a 10.9% jump in total national listings in October alone, reducing market urgency.
- The First Signs of Softening: High interest rates and stretched affordability began limiting buyer capacity. While Perth (+7.8%) and Brisbane (+5.3%) held firm, Sydney and Melbourne recorded modest monthly price declines (−0.1%) in December as supply began to outpace demand.
- Strong Annual Close: Despite the late-quarter cooling, calendar year 2025 wrapped up with a robust 8.6% national home value increase.
🟠 Q3 (January – March 2026): The Rate Hike Shock
- RBA U-Turn: To combat stubborn inflation, the Reserve Bank of Australia caught the market off-guard by raising interest rates twice (in February and March), lifting the cash rate to 4.1%.
- Evaporating Confidence: The Westpac–Melbourne Institute “Time to Buy a Dwelling” Index plummeted to a cycle low of 82.9, indicating a sharp drop in consumer confidence.
- Severe Two-Speed Market: National property price growth slowed to just 0.6% in March as borrowing capacities were sharply reduced. Sydney and Melbourne property values flatlined, while low-inventory cities like Perth maintained an aggressive monthly growth of over 2%.
🔴 Q4 (April – June 2026): Policy Pivot & Market Correction
- One Month Left Status: The market is currently experiencing what economists call a “broken back” correction. National price growth in April hit a 12-month low of just 0.3%, with Sydney and Melbourne suffering outright 0.6% monthly price drops.
- Collapsing Auction Rates: Auction clearance rates have plummeted into the low 60s — the lowest average recorded in decades — indicating that buyers are retreating amid deep market uncertainty.
- The May Budget Impact: The federal budget handed down on 12 May 2026 introduced sweeping property tax reforms to negative gearing and Capital Gains Tax (CGT) discounts. This has triggered an immediate near-term “air pocket” drop in market confidence as sellers try to clear properties before the landscape shifts.
⚠️ The Game Changer: Budget 2026–27 Tax Reforms
Handed down on 12 May 2026, the Federal Budget introduced structural tax overhauls designed to boost housing construction and assist first-home buyers. While these rules officially take effect on 1 July 2027, their impact on market behavior is already being felt.
1. Negative Gearing Restricted to New Builds
- The Rule: For any established residential property purchased after Budget night (7:30 pm AEST, 12 May 2026), investors can no longer offset rental losses against salary or wages.
- The “Closed System”: Rental losses are quarantined — they can only be offset against other residential rental income or future capital gains from property.
- Exemptions: Newly built dwellings remain fully eligible for traditional negative gearing to incentivize new housing supply.
- Grandfathering: All established properties owned or under contract before the Budget deadline are permanently protected under the old rules.
2. Capital Gains Tax (CGT) Discount Slashed
- The Rule: The statutory 50% CGT discount for properties held over 12 months will be abolished and replaced with a pre-1999 CPI indexation model, alongside a minimum 30% tax on gains.
- The Impact: Investors will only be exempt from tax on the portion of capital growth that matches inflation — meaning significantly higher tax bills on real profits.
- The New-Build Loophole: Buyers of newly constructed properties can choose between the traditional 50% discount and the new CPI method when they sell.
- The Transition: Gains accrued before 1 July 2027 will use a hybrid calculation to preserve the 50% discount for historical growth.
🔮 The 2026–27 Future Outlook: A Two-Tiered Market
Moving into the 2026–27 financial year, major institutions like Westpac have significantly downgraded their property outlooks. The market is transitioning into a fragmented, slower-growth environment defined by several key structural trends:
| Established Housing | New-Build Properties |
|---|---|
| Stalling prices / outright drops | High investor demand |
| Sydney −3%, Melbourne −4% (CY2026) | Fully retains negative gearing |
| Grandfathered supply locked up | Resilient capital growth |
| Lower CGT discount for new buyers | Choice of 50% discount or CPI method |
Stalling Prices and Capital Declines
Average dwelling price growth is expected to stall flat (0%) across major capital cities for the remainder of 2026. Under the weight of rate pressures and tax changes, Westpac forecasts outright calendar-year price corrections of −3% in Sydney and −4% in Melbourne. Conversely, Brisbane (+9%) and Perth (+13%) are expected to remain positive but slow down abruptly. Other top economists at AMP predict a near-term national correction of up to 5%, while CommBank cut its calendar 2026 price growth forecast from 5% down to 3%.
−3%
Sydney
CY2026 forecast
−4%
Melbourne
CY2026 forecast
+9%
Brisbane
CY2026 forecast
+13%
Perth
CY2026 forecast
Collapsing Turnover
Total housing market transaction volumes are projected to decline by 20%. Existing landlords are highly disincentivized from selling due to their valuable grandfathered tax status, locking up established supply and reducing market liquidity.
The Flight to New Builds
New investor buying activity is forecast to fall by 34% overall near-term. However, the private capital that remains will skew heavily toward newly built dwellings, house-and-land packages, and off-the-plan constructions to preserve tax advantages and maximise incentives.
Rental Market Strain
While the government’s $47 billion Homes for Australia Plan aims to build 420,000 homes over a decade, industry bodies like the Housing Industry Association (HIA) warn that the immediate retreat of private investors could choke supply by 35,000 homes in the short term. This prolonged rental pressure is anticipated to keep vacancy rates low and push rents higher.
The Ownership Shift
The Federal Treasury expects that over the next decade, roughly 75,000 established homes will transition out of investor portfolios and be purchased by owner-occupiers and first-home buyers who face significantly reduced competition.
🔧 Strategic Takeaways for Market Participants
For Investors
- Review Existing Portfolios: Properties held before 12 May 2026 retain their grandfathered tax status. Selling means giving up a scarce asset class that allows traditional negative gearing and CGT discounts.
- Pivot to Supply: If expanding a portfolio in FY 2026–27, reweight strategies toward brand-new constructions, off-the-plan builds, or new house-and-land packages to access remaining tax deductions and flexible CGT calculations.
For First-Home Buyers & Owner-Occupiers
- Reduced Competition: The retreat of property investors from the established market provides an entry point with less bidding competition at auctions, particularly in the premium segments of Sydney and Melbourne.
- Target Segments: Stagnating or declining prices in the established house and unit sectors over the next 12 months may create opportunities to buy without competing against heavily leveraged investment capital.
The Gambit Angle — Our Read on the Transition
- • The two-tiered market is not temporary. The structural tax changes create a permanent divergence between established and new-build property investment calculus. Advisors who understand this distinction will add significant value to clients.
- • Grandfathered portfolios are the new premium asset class. Properties acquired before 12 May 2026 with full negative gearing and 50% CGT discount will command a “legacy status” premium in investor portfolios over time.
- • Perth and Brisbane remain the standout plays. Fundamentals — strong migration, tight supply, relative affordability — are robust and relatively insulated from the established-property tax headwinds.
- • New-build investors are the clear winners. Full negative gearing retention plus the ability to choose between the 50% CGT discount and CPI method makes new construction the most tax-advantaged residential asset class in Australia’s history.
- • First-home buyers have a window. Reduced investor competition in the established market, combined with the Help to Buy scheme expansion, creates a genuine 12–18 month entry window in Sydney and Melbourne.
To review real-time statistics as the financial year wraps up, track weekly auction results via the CoreLogic Housing Market Updates or view macro-economic bank commentary on Westpac IQ Economics. For direct details on the legislative changes, visit the official Budget 2026–27 Tax Reform Portal or read the economic models provided in the CommBank Newsroom.
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