Bank shares slide after the federal budget as investors digest the government’s move to scrap negative gearing on existing properties, a change that strikes at a core driver of housing investment. Commonwealth Bank stock drops around 8-8.5% in early trade on Wednesday after a flat March-quarter update lands just hours after the tax announcement, amplifying market nerves.
Analysts argue the reform strips away a key incentive for property investors, a segment that has powered bank home-loan growth and supported richer margins for years.
Negative gearing concessions for new investors in existing properties are set to end while current investors retain benefits under grandfathering rules, creating a sharp divide in future tax treatment. Jarden estimates housing credit growth could fall by roughly 25% as investor appetite cools, a hit that lands hardest on Commonwealth Bank which runs the country’s largest investor mortgage book.
Investors have historically favoured interest-only loans which carry wider spreads and often better asset performance over time, so banks face both slower volume growth and pressure on return on equity.
Market strategists also flag a likely pullback in property listings as existing landlords may hold assets longer to preserve grandfathered tax perks, tightening supply in an already constrained market. Some analysts warn that the erosion of tax benefits could be pushed through to tenants via higher rents, particularly in cities where vacancy rates remain low.
Commonwealth Bank’s quarterly update compounds concerns by lifting provisions and signalling that sustained high inflation and interest rates will drag on household spending and business activity. Other large bank stocks fall about 2% in early trading, reflecting broader worries about earnings momentum across the sector.
UBS points to Commonwealth Bank and Westpac, the two biggest mortgage lenders, as the banks that look most exposed to the new policy, given their heavy reliance on housing credit growth. The shift in tax settings tilts the playing field away from investor-led demand, challenging a long-standing profit engine for the majors.
Bank shareholders now confront a tougher outlook in which credit expansion, margins and asset quality all face pressure from both policy and macroeconomic headwinds.
