The Australian Federal Budget
The Budget
By Peter O’Malley, author of Inside Real Estate
Rarely has a Federal Budget had such an immediate and significant impact on consumer sentiment and confidence in the property market like the one delivered by Treasurer Jim Chalmers in May 2026.
The changes outlined in the Budget have not even passed through the Parliament yet.
Given the Government has the numbers though, you can reasonably expect they will be ratified unless there is a back bench revolt.
If the Budget is passed in its current format, there will be a long and lasting impact on Australia’s property market. Negative Gearing has been axed on existing dwellings for landlords who buy an investment property after Budget Night.
Under the new changes announced by the Treasurer, landlords can still take advantage of Negative Gearing only for brand new dwellings though.
The Budget was positioned as a war on ‘Intergenerational Inequality’.
Like many Government reforms, they seem simple enough at face value, but the ripple effect is usually far and wide – the unintended consequences immense and the outcome often the opposite of what was originally intended.
The Government seems to have hit far more public resistance to their reforms than they were anticipating.
The resistance is primarily driven by two key points – firstly the Government had no political mandate to remove Negative Gearing or CGT. Particularly given Anthony Albanese claimed he had promised ‘for the 50th time’ to leave both tax policies in place when quizzed during the 2025 Federal Election.
Secondly, the notion these tax reforms will arrest the Intergenerational Inequality is hard to stomach, given the proposed changes benefit those already in the property market more than those trying to enter the market.
Whether one agrees or disagrees with the reforms outlined in the Budget, there is no doubt the Government is playing with fire.
If the Australian housing market suffers a significant and lasting downturn which is attributed to the Government’s Budget, they will struggle to hold office.
The market was already well into a downturn before the Budget on May 12, but you wouldn’t know it from the recent commentary. The narrative has been packaged as ‘the housing market is falling due to the Budget!!’, which is an inherently incorrect assessment.
According to some, the root cause of the current turmoil in the property market is not the Middle East war, nor the 3 rate hikes in 2026 or even high petrol prices, it’s got nothing to do with Global Inflation – “the Budget did it”. Herein lies the Government’s battle in winning the PR war.
Given the opposition leader Angus Taylor has promised to overturn the Budget’s reform if elected, there is a genuine chance the reforms are legislated and then overturned in the future.
This political uncertainty is just one more cloud hovering over the market for the immediate future.
Keep an eye on…
Rents – given the rental market is at record highs, many people jump to the conclusion its peaking. The reality is rents will rise further and faster under the Budget reforms. Landlords/investors are already net sellers of Sydney property i.e. more investors have been selling out than there have been buying in, over the past 6 years.
This has caused the rental pool to shrink at a time of record immigration. The removal of Negative Gearing on existing dwellings will see investors move to ‘off plan’ purchases which won’t alleviate the rental crisis anytime soon – or they will pursue other asset classes.
Aspirational first home buyers will find it harder to save for a deposit given their weekly rent absorbs so much of their pay packet.
Price bubble – those prepared to invest in property and take advantage of Negative Gearing will find themselves buying from developers who will have priced in a premium for their ‘brand new stock’. Once investors settle on their brand new property, it is reclassified as a ‘existing property’ – with the value/price dropping to reflect the broader established market.
An ‘off the plan’ resale is counted as existing stock – representing a major trap for investors who buy off the plan and find themselves having to on sell before completion.
Primary residence – one of the few winners from the Chalmers Budget is the family home, given its tax-free status remains in place.
A likely side effect would be family’s opting to fully capitalise their primary residence rather than purchase an investment property.
Let’s face it, investing in renovations to your family home is a safer bet than buying a $1.5 million apartment from a prototype model in a showroom, from a developer that has a 3 Star Google Review.
Existing home owners can still Negative Gear if they choose to move out of their primary residence and lease it.
This makes the Government’s Budget sell hard to stomach – when existing home owners can still opt to use a proven investment/tax strategy that has been taken away from the next generation.
An example of how this plays out – a couple get an employment opportunity interstate.
Instead of selling their existing home, they turn it into an investment property with Negative Gearing benefits and rent or buy their interstate residence.
Conversely, a young person who saves a deposit and secures their first home (post 2026 Budget) and later takes up an interstate career opportunity, won’t be able to Negatively Gear their property. This creates a clear advantage to incumbent property owners.
Pre-CGT assets – for those fortunate enough to own assets before the introduction of CGT in 1985, they avoid having to pay CGT when they sell those assets.
Under the 2026 Budget, assets purchased before September 20 1985 will now attract CGT on the gains from July 1 2027.
Whilst this hardly levels the playing field, it is an acknowledgement that a generous 40 year tax free arrangement has come to an end.
In reality, this article does not even begin to skim the surface of how different the property market may look in the near future.
The ripples effects of such structural change will go on for quiet sometime
Market Insights
There will be many dynamics impacting the property market for buyers and sellers to keep an eye on in the months ahead.
The RBA have delivered a reality check with an interest rate hike followed by a strongly worded statement highlighting their intolerance for rising inflation levels. The impact of the February rate hike will be significant.
Many are wondering how the property market will respond to rising interest rates.
We only need to look at some of the lessons from 2022 when interest rates unexpectedly rose at that time to gauge how the market may respond.
The NSW Government have delivered real estate agents with a reality check, cracking down on bad practices in the real estate industry. This long overdue cleanup of unacceptable behaviour and sales tactics will be welcomed by buyers and sellers.
Many agents will be forced to change their standard modus operandi to avoid the wrath of the Government’s crackdown.
The Government’s new register will identify real estate agents and strata managers who commit serious statutory breaches.
Including pricing misconduct (underquoting), falsified document ation, fee misuse (dodgy incentive schemes), safety and insurance failures, undisclosed withholding conflicts, information, and obstruction of regulatory efforts.
‘Name and Shame’ register
In a press release, the NSW Government stated “The Minns Labor Government has launched a powerful new tool allowing homeowners, purchasers and renters to check the track record of property agents before they sign on the dotted line.
The new ‘Name and Shame’ List run by NSW Fair Trading publishes enforcement actions such as fines, licence suspensions and cancellations against real estate agents, property managers and strata managing agents in one easy-to-search place.
It is the latest in a range of tools and reforms the Government is pursuing to give consumers clarity and confidence when choosing a real estate agent, and to hold licence holders accountable for serious or repeated breaches of the law.”
In a surprise to no one, ‘underquoting’ will be high on the list of practices Fair Trading will be monitoring.
In the last few years, homebuyers increasingly added 10% to 20% to whatever price guide the respective agent quoted them, as a way of gauging where the sale price could land.
In such instances, the respective property was not achieving a premium, it was simply reverting from a severely underquoted price, back to market value as hopeful buyers competed for the property. The message that the Government means business when it comes to underquoting is getting through to the real estate industry.
The issue won’t be completely stamped out overnight, but there will be fewer instances of properties selling for 20% above the agent’s Guide in 2026.
Buyers should see advertising guides offer a closer resemblance of market reality.
Rental market
Coming into 2026, the elements for a modest increase in the rental market were already in place, as tenant demand outstripped landlord supply.
As mortgage rates and taxes increase, history suggests landlords are more prone to chase higher rents to offset costs.
Price growth in the rental market in 2025 was healthy, without being onerous for tenants.
Landlords were often gracious when negotiating rents last year as the decreasing interest rates offered relief to their cashflow. How the rental market performs with rising demand, inadequate supply and landlords facing rising holding costs will be interesting to watch.
A landlord who wants to increase the rent is only half the story. Does the broader market conditions warrant an increase at the point of leasing and/or re-letting?
If developers were building en masse, the additional supply would make it harder for landlords to up the rent.
However, with tight supply, tenants may find themselves facing larger rental increase than they expected.
Land Tax
In 2024 the NSW Government made subtle changes to the way they calculate Land Tax.
They did not outright increase Land tax, but they did freeze the Tax Threshold until 2027.
The upshot will be investors who already pay Land Tax will pay more in 2026 and more investors will pay Land Tax for the first time this year as the Land Value of their investment holdings surpass the Tax Free Threshold of $1,075,000.
The threshold freeze will have a significant impact this year because the Sydney market performed so strongly in 2025, lifting land values across the board.
Land Tax notices go out each February, meaning investors will be dealing with rising Land Tax and interest rates this month.
In combination, it’s reasonable to expect many investors will sell out of property to escape the rising holding costs, which will contract rental supply at the most critical time.
January is one of the worst months to draw any major conclusions about the state of the Sydney property market.
Agents, lawyers, buyers and sellers are away for the first half of the month enjoying a summer break, meaning the market is in an unofficial shut down period.
If any major conclusion can be drawn from the opening to the 2026 market though, it’s that stock levels are unusually high for so early in the year.
Many quality properties have come to market in early February, with hopes of selling prior to Easter which falls on the first weekend in April.
Whilst 2025 was a year that favoured sellers, the reality is a significant number of listings failed to sell late in 2025.
Spring stock levels surged right at the same time the inflation rate rose to 3.8% and the notion there was further rate cuts to come were quickly replaced by the reality rate hikes were probable. Many of those listings from late 2025 have and will be re-listed in 2026.
How the market absorbs the elevated stock levels to begin the year will largely determine how the market performs through until winter.
Strong sales and low days on market will give discretionary buyers the confidence to jump in.
Listings that languish, low clearance rates and downward pressure on prices is a scenario that would see buyers adopt a ‘wait and see’ attitude.
Bidders per property
Our sales early in 2026 have been driven by multi-buyer scenarios.
If multiple buyers continue to bid for available listings, vendors who are prepared to work with the market and accept best market price will achieve good outcomes.
Attaining a sale where the agent and vendor only has one serious buyer at the auction or to negotiate with makes achieving a premium price that bit harder.
Aussie Dollar
The immigration rate is widely accepted as being a contributor to rising rents and property prices. What has been overlooked in much of the commentary is the role of the AUD.
The Aussie Dollar has been historically low in the past 18 months, meaning high skilled immigrants entering the country enjoy a currency bonanza when bidding on property.
The same principal applies to ex pats too.
This has made new arrivals and ex-pats formidable competitors at auctions.
After languishing around $0.65 for much of 2025, in recent months, the AUD has broken through the $0.70 level against USD.
Now the RBA are increasing interest rates at a time much of the world is cutting them.
We could see the AUD drift higher, taking the advantage away from offshore buyers.
The property market will be dealing with a multitude of factors not taken into account in the above article.
Some forces act as headwinds for property prices and some will be tailwinds.
Staying in tune with the market forces is the key to making the right decision under pressure when signing a contract to buy or sell