Investor loan applications at Westpac have fallen about 20% in just three weeks after the federal budget flagged major changes to negative gearing and capital gains tax. Under the proposal, a minimum 30% tax on capital gains would apply from July 2027 while negative gearing benefits for existing properties would be scrapped. Those measures have spooked property investors who are reassessing the appeal of leveraged housing investments. Auction clearance rates and house prices in Sydney and Melbourne have already slipped as the mood cools.
Westpac’s consumer banking leadership characterises the shift as a broad sense of unease rather than outright panic but the pullback is still meaningful for the bank’s mortgage pipeline. Property investors who often drive a disproportionate share of turnover in major city markets now face a different after-tax return profile on housing. The changes reduce the ability to offset rental losses against other income and increase the tax payable when selling investment properties at a profit. The combination makes highly geared investment strategies less attractive, at least until there is more clarity on final legislation.
Housing activity was already under pressure before the tax announcements after the Reserve Bank of Australia lifted official interest rates three times this year and pushed borrowing costs higher. Higher rates cut serviceability for borrowers, limit maximum loan sizes and deter new entrants, especially in expensive markets.
The surge in fuel prices linked to conflict in the Middle East earlier this year has also squeezed household budgets, reducing discretionary capacity to invest. Layering tax reforms on top of these headwinds intensifies the slowdown in property investment and early signs in auction data suggest sentiment in major cities continues to soften.
