There is a point in every property cycle where the numbers stop driving decisions and sentiment takes over. Australia reached that point in the second half of 2025 — and the Federal Budget’s proposed reforms to negative gearing and Capital Gains Tax (CGT) have become the single most disruptive force in the market since interest rates began their rise.

The Real Estate Buyers Agents Association of Australia (REBAA) has released its end-of-financial-year market update, and the picture it paints is one of a market caught between solid fundamentals and fractured confidence. The fundamentals — population growth, tight rental markets, structural undersupply — haven’t gone anywhere. But confidence? That’s a different story.

From urgency to deliberation

REBAA Vice President Zoran Solano says the policy debate alone has been enough to cool confidence across multiple markets, with investors pausing acquisitions, reassessing borrowing capacity and re-running the numbers on cash flow, holding costs and long-term strategy.

“Buyers of all types have become more selective and value-driven,” Solano notes. “We’re seeing a more cautious and segmented market emerge across the country.”

The shift is real and measurable. Investor enquiry is softer. Days on market are longer in several states. Compromised stock and unrealistic pricing is meeting resistance across all buyer types. The tone of the market has moved — decisively — from urgency to deliberation.

What’s striking about this change is that it has happened not because of legislation, but because of the possibility of legislation. The reforms haven’t been passed. But the mere prospect of them has been sufficient to reshape behaviour at every level of the market.

New South Wales: a two-speed market emerges

REBAA New South Wales State Representative Linda Johnson describes NSW as officially in a transitioning market — one that has moved into a more selective, price-sensitive phase rather than a uniform downturn.

Sydney is carrying the clearest signs of fatigue. Cotality data shows Sydney dwelling values fell 0.9 per cent in May and are now 2.1 per cent below their November peak. The urgency seen earlier in the cycle has subsided, with buyers less willing to compete for properties that aren’t well-presented, well-located or accurately priced.

Houses at the upper end are facing greater scrutiny. Well-positioned units and lower-maintenance homes are holding up better as affordability pressures continue to shape behaviour. Regional NSW tells a different story — Cotality and NAB data show regional dwelling values rose 2.4 per cent over the first quarter and 8.9 per cent annually, with Newcastle, Wollongong and the Central Coast continuing to benefit from lifestyle and infrastructure-led demand.

While investor activity has declined noticeably, it hasn’t disappeared. ABS lending data shows national investor loan commitments fell 5.3 per cent in the March quarter, yet remained 18.8 per cent higher than a year earlier. Investors still active are focused on cash flow resilience, depreciation benefits and exit liquidity — not growth speculation.

Victoria: confidence, not capacity, is the missing ingredient

REBAA Victoria State Representative Matt Scafidi says Melbourne’s market has remained relatively stable throughout the financial year, but conditions vary significantly across segments.

Quality family homes in Melbourne’s eastern and inner suburbs continue to attract strong buyer competition. Compromised properties and unrealistic vendor expectations are experiencing longer campaigns and more negotiation. The distinction is becoming sharper, not softer.

The most significant shift has been in investor sentiment. While existing investors have largely been protected through grandfathering provisions, the proposed changes to negative gearing and CGT have created significant uncertainty for future investment decisions. At the ground level, investor enquiry has declined noticeably since the Budget announcement, particularly for established dwellings.

Critically, the vacuum left by retreating investors has not been filled by first-home buyers. The immediate impact has been a reduction in overall investor confidence — not a rebalancing of the buyer pool. Melbourne’s investor participation was already under pressure compared to other states. The Budget has deepened that pressure.

“Buyers remain active and finance-ready,” Scafidi notes, “however investor participation is likely to remain subdued until there is greater certainty around future taxation policy.”

Queensland: the adjustment begins

After several years of exceptional growth, REBAA Queensland State Representative Melinda Granzien says Queensland’s market has entered a period of adjustment.

Across Southeast Queensland and many regional markets, conditions are shifting from a strong seller’s market towards a more balanced environment. The fear of missing out that drove much of the market over recent years has eased. Buyers are now more willing to negotiate, walk away from overpriced stock and demand better value for money.

The change is visible in the listings data. More properties are being listed, but many are remaining on market longer rather than selling within days. Vendors need to recognise that conditions have changed — price expectations must align with current buyer sentiment, not last year’s results.

Properties below $1 million continue to attract solid enquiry from first-home buyers and owner-occupiers. Above that threshold, inspection numbers have dropped and decision-making has slowed — unless a property offers exceptional value, location or lifestyle appeal.

Western Australia: peak pace is behind us

Perth has continued to see strong growth this financial year — 9.5 per cent year to date and 25.8 per cent annually — bringing the median value to $1,050,354, according to REBAA Western Australia State Representative Peter Gavalas. But the pace that defined the market’s most explosive phase is clearly behind us.

Stock levels started the year at a record low — fewer than 2,000 listings — and have since climbed to 5,733 properties as the financial year closes. Days on market have shifted from approximately nine days to 14 days in May, with many campaigns now running for three weeks.

Since Budget night, investor activity has dropped sharply. Proposed changes to CGT and negative gearing have moved most investors to the sidelines to reassess strategies. High-yielding properties remain in demand, and new builds are attracting attention from investors who can still access negative gearing under the proposed framework. Post-Budget, there has also been a rise in investment stock listings, as long-term investors move to sell ahead of potential CGT changes.

The bigger picture

What REBAA’s end-of-year snapshot makes clear is that the Federal Budget has achieved something remarkable: it has changed market behaviour without yet changing the law. The uncertainty alone has been sufficient to cool confidence, slow decisions and shift the tone of every major property market in Australia.

The fundamentals remain intact. Population growth is real. Rental markets remain tight. Structural undersupply hasn’t resolved itself. But fundamentals don’t buy property — people do. And right now, the people who would be buying — particularly investors — are sitting on their hands, waiting for clarity that may not arrive for months.

For buyers who are finance-ready and patient, the current environment presents genuine opportunity. Increased choice, reduced competition and stronger negotiating positions are real advantages that won’t last indefinitely. But for a market that relies on investor participation to function — and for a housing supply challenge that depends on private capital — the confidence gap opened by this Budget is a problem that neither data nor fundamentals alone will close.

The confidence gap: How the Federal Budget’s tax uncertainty is reshaping Australia’s property market

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