HSBC forecasts 13% drop in Australian house prices as tax changes, higher rates take hold
A fall of that size would top the largest price crash of 8% in the country’s capital cities between 2017 and 2019
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[SYDNEY] HSBC has predicted Australian house prices will fall 13 per cent nationally by mid-2027 as the government’s property tax changes and higher interest rates dent demand from homebuyers.
A fall of that size would top Australia’s largest price crash of 8 per cent in the country’s capital cities between 2017 and 2019, which was the largest decline in 30 years, the bank’s economists said.
“If this plays out as we expect, it would be the largest housing price correction in modern history,” Paul Bloxham, HSBC’s chief economist for Australia, said in a report published on Tuesday (Sep 8).
The 13 per cent drop would occur from April, the month before the tax changes were announced in the May Budget, for the next 15 months, Bloxham noted. Nearly 5 percentage points of the correction had already occurred, he added.
Australia’s centre-left Labor government said in the May Budget that it would scrap the capital gains tax discount from July 2027. Negative gearing, which allows investment losses to be offset against taxable income, will be banned on existing housing.
The tax changes have already had a sharp impact on the country’s property market.
National home prices fell 0.9 per cent in August from July when they dropped 1.2 per cent, according to data from property consultant Cotality. Sydney and Melbourne again led the monthly decline with falls of 1.4 per cent and 1.1 per cent, leaving prices down about 7 per cent from their peaks.
“The key reasons for larger declines this time are first, the tax changes, which are unprecedented,” Bloxham explained. “And second the fact that stubbornly high inflation, due to very weak productivity growth, means the RBA (Reserve Bank of Australia) is likely to hike, rather than cut, even though housing prices are already falling.”
The RBA has raised the cash rate three times this year to 4.35 per cent, and markets are fully pricing in another hike this year after a strong inflation result for July.
HSBC has forecast that the RBA will raise rates again in September and November. REUTERS
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