Australian housing was already cooling before the budget – but how cold it gets depends on two key factors
Summary
Australia’s housing market was already slowing down before the government's budget changes on property taxes. New tax rules, especially on negative gearing and capital gains, are causing investors to pull back, with Sydney expected to see the biggest price drops due to these changes and investor activity.Key Facts
- The government changed rules on negative gearing and capital gains taxes starting from May 12.
- Negative gearing means investors can subtract losses from their rental properties to reduce tax. The new rules limit this benefit.
- Housing prices in Sydney and Melbourne were already falling before the budget due to higher interest rates and other economic factors.
- After the budget, prices in these cities fell further or stayed flat for May.
- Treasury predicts the tax changes will reduce house prices by 2% over two years; one economist forecasts a 5% fall within one year.
- Sydney will likely see the biggest price drop because 43% of housing loans there go to investors.
- Sydney’s rental yields (rent compared to property value) are the lowest in Australia, making investment less attractive under the new rules.
- The share of homes sold at auction in Sydney fell below 50%, the lowest since early in the COVID-19 pandemic.
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