Tax Reform, Not Interest Rates, Is Now the Biggest Threat to Property Prices — Here's What It Means for You

If you've been waiting for interest rate cuts to be the thing that moves the property market, there's a new player in town — and it's bigger.

New research from the Australian Property Institute (API) has found that the federal government's proposed tax reforms — not interest rates — are now seen as the single biggest downward pressure on residential property values. In a survey of 265 property professionals, 82% pointed to the negative gearing changes as a key factor pushing prices down, ahead of both capital gains tax (CGT) reform and interest rate expectations (each on 77%).

This is the first time in the residential market that interest rates have been knocked off the number one spot. And it's happening more than a year before the reforms even start.

What's Actually Changing (and When)

The reforms don't kick in until 1 July 2027, but the market is already adjusting. Here's the shape of it:

• The standard 50% CGT discount will be replaced with an inflation-adjusted model, with a 30% floor.

• Negative gearing will be restricted to new residential builds only.

• Established properties bought before 12 May 2026 will be grandfathered under the old rules.

Sentiment is already reflecting this. The API's headline Property Market Outlook Index has now fallen for three quarters straight, and residential sentiment alone dropped from 6.0 to 5.0 out of 10 — moving from the strongest-performing sector to dead neutral in under a year.

Will It Actually Help Buyers? Professionals Aren't So Sure

Here's where it gets interesting: the people who value property for a living aren't convinced the reforms will deliver on their own goals.

• Only 46% think the CGT changes will improve affordability for buyers.

• Only 48% think the negative gearing changes will help buyers.

• On supply, opinion is split almost down the middle — roughly a third expect construction to fall, while a similar share expect it to rise.

But on one point, there's real consensus: renters are expected to come off worse. Around 62–63% of respondents believe both reforms will make housing less affordable for tenants.

As API chief economist Sherman Chan put it, the reforms were designed to help first home buyers and boost supply, but "the professionals closest to the market are not convinced the supply will materialise" — while there's clear agreement that renters carry the risk, and they're the group least able to absorb it.

What This Means If You're an Investor

This is the part I want every client of mine to actually understand, because it's already reshaping how lenders assess borrowing power — right now, not in 2027.

Major lenders, including ANZ, CBA, NAB, and Macquarie, have started tightening how they assess negative gearing tax benefits in their serviceability calculations. For some borrowers, this has already cut maximum borrowing capacity on established dwellings by up to 20%.

But here's the twist: investors aren't leaving the market. They're buying differently.

With capital city gross rental yields sitting around 3.5% and variable investor rates around 6.4%, most established properties are running at a cash flow loss. So investors are shifting toward cheaper, higher-yielding stock — think units at roughly 4.5% yield versus houses at around 3.2% — because lower price points mean less debt, lower holding costs, and less reliance on negative gearing to make the numbers work.

The catch for first home buyers: that's exactly the price bracket they've traditionally competed in. As mortgage broker Alex Veljancevski notes, investors who might previously have shopped in the $1.2–1.5 million range are now looking at the same homes as first home buyers — not because they're being pushed out of the market, but because they're being pushed down it.

What This Means If You're a First Home Buyer

If you've been holding off, waiting for investors to step back and ease the competition — this data suggests the opposite may happen in the short-to-medium term. Investor demand isn't disappearing; it's concentrating in the same entry-level price brackets first home buyers rely on.

That means:

• Getting pre-approved and understanding your true borrowing capacity matters more than ever.

• Timing and structure (e.g. buying before the July 2027 changes, or understanding how grandfathering applies) can materially affect your options.

• Competition at the lower end of the market may intensify before it eases.

What This Means If You Already Own an Investment Property

If you purchased before 12 May 2026, you're grandfathered under the current rules — but it's worth reviewing your portfolio now rather than later. Lending assessment changes are already live, which can affect your capacity to refinance or add to your portfolio, regardless of what happens in 2027.

Bottom Line

Structural undersupply, land scarcity, and population growth are still pushing prices up. But for the first time, tax policy is pulling just as hard in the other direction — and the market is pricing that in now, well ahead of the actual start date.

Whether you're buying your first home, growing an investment portfolio, or just trying to make sense of your borrowing power in this environment, the details matter more than the headlines. If you want to know exactly how these changes affect your numbers — borrowing capacity, timing, or strategy — that's exactly the conversation I'm here to have.

Get in touch and let's map out your next move before the market moves again.

— Phil

Source data: Australian Property Institute Q3 2026 Australian Property Market Outlook survey; Cotality market figures, June 2026.

This information has been prepared by PHA Financial Services and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information provided was accurate at the time of publication and changes in circumstances after a document is published may impact on the accuracy of information. Some information may have been collated from various third parties and we make no assertion that the information was originally ours.