Something curious is happening in the Australian property market right now. After a long period when homes barely existed for sale, owners are suddenly testing the waters. Buyers, meanwhile, are looking at their wallets, checking their mortgage calculations, and often walking away.
The timing is awkward. After a long period of very low stock levels of existing properties, more owners are expected to test the market in 2026, with extra listings expected to take some heat out of price growth. But that supply boost arrives just as potential purchasers face headwinds from multiple directions.
Start with interest rates. The RBA raised the cash rate to 3.85% in February, and most economists expect another hike is coming. Dwelling price growth is expected to slow over the remainder of 2026 to rise by a bit over 5% over the year to December 2026, with the slowdown primarily reflecting the effect of higher mortgage rates and an anticipated further increase in May set to cool buyer sentiment. Your mortgage just got more expensive, and there is a real possibility it will get worse.
But rising rates are only half the story. The bigger wildcard is tax policy. The Federal Government confirmed it is examining changes to two major property tax policies ahead of the May 2026 budget: negative gearing and the Capital Gains Tax (CGT) discount. The proposal would be significant; the government is considering winding back the CGT discount from 50% down to 33% for assets held longer than 12 months, and limiting the use of negative gearing to a maximum of two investment properties per person.
In plain English, this means investors could end up paying substantially more tax on property sales, and may be restricted from building large portfolios. Even though it is highly likely that existing property investments would be "grandfathered" if changes pass, the mere prospect of reform is enough to make buyers hesitant. Why buy now if the tax treatment might be worse than it is today?
The counterargument deserves a fair hearing. Supporters of the changes argue that the current tax settings heavily favour wealthy investors over first-home buyers. There is a genuine tension here: a young couple trying to save for a deposit is competing against investors who benefit from unlimited negative gearing deductions. Property prices have soared; affordability has collapsed. From this perspective, levelling the playing field makes policy sense.
Yet the other side raises legitimate concerns about unintended consequences. The Property Council of Australia cautioned that reducing the CGT discount for existing properties could force investors to raise rents to cover their costs, further squeezing an already tight rental market and deterring the future development of new housing stock. Rent-stressed tenants would be one casualty; the slow supply of new rental properties would be another.
The market itself is telling a geographical story. National dwelling values rose 0.8% over February 2026, taking the annual change to 9.9%, with Perth up 2.3% in February and Brisbane rising 1.6%, while Sydney and Melbourne were flat over the month and both slipped over the rolling quarter. In other words, the affordable capital cities are still moving; the expensive ones are stalling.
The February rate hike, higher average loan sizes and the three-percentage point serviceability buffer are limiting borrowing capacity, with APRA's new 20% cap on high debt-to-income lending also tightening credit at the margin. For many buyers, the question is no longer "where should I buy" but "can I even qualify for a mortgage."
The honest answer is nobody knows for certain how this resolves. Markets do sometimes move on uncertainty; rate hikes create uncertainty, which temporarily sidelines some buyers. But equally, with listings well below long-term averages and supply-demand pressures firmly in place, a single rate hike is unlikely to materially change the overall market balance.
What we have right now is a classic mismatch. More homes are coming to market, but fewer people feel ready to commit. The buyers who are positioned to act, have finance arranged, and are not paralysed by "what if the tax changes" scenarios might find this a genuine window of opportunity. For everyone else, it is a season of watching and waiting.