Property investors ‘crash out’ after federal budget tax changes

Investors are experiencing a downturn following recent federal budget tax changes, particularly those affecting negative gearing and capital gains tax. According to the Reserve Bank of Australia's credit aggregates data, investor housing credit growth slowed to 0.32% in August, a significant drop from the December 2025 peak of 0.95%.

This slowdown is attributed to reduced borrowing capacity for investors due to lower after-tax cash flow resulting from the budget changes. Investors now demand higher rental yields to justify deals, but the market remains at low yield levels despite falling property prices and rising rents. Gross rental yields across capital cities are at 3.7%, far below the 5% risk-free rates offered by Australian banks.

Additionally, property investors must account for various expenses such as maintenance, land taxes, and mortgage interest, further decreasing profitability. With Australian dwelling values declining by 5.2% since March and potentially more so due to rising interest rates, investing in a falling market for negative cash flow becomes unattractive when compared to high-risk-free deposit rates.

The downward cycle appears self-reinforcing, as investor withdrawal from the market due to the budget changes contributes to falling home prices, which in turn discourages further investment. Analysts believe that home prices must stabilize at lower levels with higher rental yields, but the bottom of this cycle has not yet been reached.