Sydney, Melbourne housing investors pull back after tax changes

[SYDNEY] Australian property investors borrowed substantially less last quarter, with the mid-May reduction in tax breaks likely driving their pullback, especially in Sydney and Melbourne. 

New loans to home investors fell more than 10 per cent in the three months through June from the first quarter, official data released on Friday (Aug 14) showed.

Loans in New South Wales, where most of the state’s population live in Sydney, dropping more than 14 per cent. 

Lending in Victoria, where most people live in the capital Melbourne, was down 12.5 per cent, and borrowing by investors also dropped in four of the six other states and territories.

The tax changes announced in mid-May are aimed at slowing the growth in home prices in one of the most unaffordable markets in the world.

Prices had already started falling before the government limited the ability to reduce tax by writing off investment losses in May, but the decline has accelerated since that point, with the average price in July down almost A$20,000 (US$14,085) since peaking in March, according to data from Cotality. 

Lending to owner-occupiers saw much shallower declines, with a 1.9 per cent drop nationwide. But the declines were steeper in New South Wales, which saw an almost 10 per cent decline in the value of those loans in the quarter. 

Overall, new loans fell 5.2 per cent from the first quarter, the biggest drop since the end of 2022. 

The data confirms weakness reported by the nation’s banks, with the three biggest lenders all reporting big falls in mortgage applications during the period.

SEE ALSO

Australia’s July business conditions improve, sentiment fragile

Australia housing prices drop slows economy

Demand may remain subdued as reduced tax breaks discourage investors and sliding home prices give other buyers an incentive to wait for the market to reach a bottom.

The slide in prices and lending signals Prime Minister Anthony Albanese’s attempt to tame the country’s increasingly unaffordable housing through new tax policies is having an impact.

Efforts include policy changes that make it less lucrative to buy up properties as investment assets. 

Prices appear to have peaked in Sydney and Melbourne in November 2025, and are now down about 5 per cent in both cities, according to Cotality.

Other major cities and regional areas peaked later, with prices starting to fall from March as the Reserve Bank of Australia raised interest rates and the war in Iran added to inflationary pressures.

In a recent report, AMP’s veteran chief economist Shane Oliver said that nationwide, prices will fall around 3.5 per cent this year, with a 7 per cent drop overall. BLOOMBERG