Two of Australia’s largest listed residential developers have flagged lower sales volumes ahead, a signal that federal tax policy changes announced in the May budget are starting to show up in contract signatures. The immediate effect is slowing presales. The second-order question is whether contracts already exchanged will convert to settled completions over the next twelve to eighteen months.
That settlement conversion rate matters more than the headline sales figure, because developers rely on a threshold percentage of presales, typically 70 to 80 percent of units in a project, to secure construction finance and break ground. If buyers who exchanged contracts before the policy details were finalised now choose to walk away, forfeiting their deposit rather than settling, projects that looked fundable in March may stall in late 2025 or early 2026.
The mechanics of presale-to-settlement conversion
A presale contract is an agreement to buy an off-the-plan unit, usually secured with a 10 percent deposit. Settlement occurs when construction completes and the buyer pays the balance, typically twelve to twenty-four months after exchange. Between those two points, three things can derail conversion:
- The buyer’s financial circumstances change (job loss, income reduction, serviceability tightening)
- Market sentiment shifts and the buyer decides the unit is no longer worth the contract price
- Tax settings or borrowing conditions move enough that the buyer recalculates the investment return and walks
In stable conditions, settlement rates for apartments in Sydney and Melbourne run above 90 percent. During sharp sentiment shifts, 2018’s credit squeeze, COVID’s initial uncertainty, rates dropped below 85 percent in some projects. A five-percentage-point drop doesn’t sound dramatic until you apply it to a 200-unit tower where the developer needed 160 presales to start construction: suddenly they’re at 150 settled units and the project economics no longer close.
Key numbers
- Typical presale threshold to secure finance: 70–80% of units in a project
- Normal settlement conversion rate (stable market): 90–95%
- Settlement conversion during credit/sentiment shocks: 80–85%
- Median deposit forfeited by a buyer who walks: 10% of contract price
- Time between exchange and settlement for off-the-plan apartments: 12–24 months
The May budget changes, higher capital gains tax for some trusts, restrictions on negative gearing for new purchases of established dwellings, and tighter rules for property inside self-managed super funds, don’t take full effect until 1 July 2025. Buyers who exchanged contracts in February or March, expecting to settle under the old rules, now face a different calculation if their structure or financing was premised on settings that no longer apply.
What percentage of presales are investor-backed
Industry surveys over the past five years consistently show that investors make up 50 to 65 percent of off-the-plan apartment buyers in Sydney and Melbourne, and 40 to 50 percent in Brisbane. Those figures vary by project and location, inner-city towers skew higher, suburban townhouse developments skew lower, but the broad picture is that more than half of the contracts developers rely on to fund construction are held by buyers using the purchase as an investment, not an owner-occupied home.
That’s the cohort most sensitive to changes in negative gearing, capital gains treatment, and super fund rules. An owner-occupier buying their first apartment is less likely to walk because the tax settings shifted. An investor syndicating a purchase through a trust, or buying inside a self-managed super fund, is more likely to reassess whether the deal still pencils out under the new regime.
The result: even if only 5 to 10 percent of investor buyers choose to forfeit their deposit and walk, that’s enough to push some marginal projects below the presale threshold lenders require.
The supply pipeline consequence
Developers don’t sit on land indefinitely. If a project can’t secure construction finance because presales fell short, the site either gets sold to another developer (who faces the same hurdle), mothballed until sentiment improves, or pivoted to a different use, retail, commercial, build-to-rent if the numbers work.
Each of those outcomes removes dwelling supply from the pipeline, or at least delays it by twelve to twenty-four months. The federal government’s housing target, 1.2 million new homes over five years from 2024, was already under pressure before this presales slowdown emerged. Losing even 10 percent of planned apartment starts in Sydney and Melbourne would push that target further out of reach, which creates its own feedback loop: less supply, higher rents, more political pressure, more policy churn.
The trade-off is explicit. The budget changes were designed to reduce speculative demand and redirect capital toward new builds rather than established housing. If they succeed in cooling investor appetite, settlements drop, projects stall, and supply falls. If they fail to cool demand, prices and rents keep climbing and the policy is deemed ineffective. There’s no version of this where both things go right simultaneously.
What we’re watching between now and mid-2026
Three indicators will show whether this is a temporary sales slowdown or a structural settlement problem:
- Apartment settlement rates in Sydney and Melbourne, reported quarterly by listed developers, if those rates stay above 88 percent through the second half of 2025, the presales already exchanged are converting and the immediate supply risk is contained
- New project launches and presale campaigns, if developers pull back launch activity or require higher presale thresholds (80 percent instead of 70 percent) to proceed, that’s a sign lenders are pricing in higher settlement risk
- Deposit forfeiture cases and contract rescissions, any spike in buyers walking away from off-the-plan contracts, especially in the $800k–$1.5m segment where investors dominate, would confirm the tax changes are biting harder than the 10 percent deposit penalty
For context: during the 2018 credit squeeze, settlement rates for some Melbourne apartment projects dropped to 82 percent, and several towers were delayed by six to twelve months while developers renegotiated finance or found new buyers to replace the ones who walked. That was a financing shock, not a tax policy shock, but the mechanics are similar.
If you’re holding an unconverted presale contract
If you exchanged a contract for an off-the-plan apartment before May 2025 and your structure or financing relied on negative gearing, capital gains concessions, or super fund rules that have since changed, here’s the decision tree:
- Calculate the after-tax return under the new rules, including any higher land tax or reduced deductions, and compare it to your original projection
- Price in the opportunity cost: what else could you do with the capital if you forfeited the 10 percent deposit and walked
- Check whether your lender will still approve the loan under the same terms, or whether serviceability buffers or investor loan-to-value-ratio limits have tightened since you got pre-approval
- If the numbers no longer work, walking and losing the deposit may be the lower-cost decision compared to settling and holding an underperforming asset for five to seven years
That calculation is specific to your own situation and structure, and it’s not one to make without running the numbers properly. The deposit forfeiture is real money, but so is several years of negative cashflow on an investment that no longer delivers the return you modelled.
Rent increase Labor tax reforms: why the 30% claim doesn’t stack up covered the demand-side debate around whether these changes would push rents higher. This is the supply-side follow-through: fewer presales converting to settlements means fewer apartments delivered, which tightens rental supply regardless of what happens to investor demand.
The listed developers’ public commentary is cautious, as you’d expect, they’re not going to front-run a settlement crisis if one doesn’t materialise. But the fact that they’re flagging lower sales now, six months before the policy takes full effect, suggests they’re seeing hesitation in contract exchanges that wasn’t there in the first quarter. Whether that hesitation shows up as lower settlement rates or just slower new sales is the question for the next twelve months.
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General info, not financial advice.
