Investor participation at auction fell sharply in the weeks after the federal budget introduced new tax settings for investment properties, then partially recovered through July. But the latest numbers, drawn from more than 64,000 auction campaigns, suggest the bounce is fragile and the longer-term direction remains uncertain.
From 12 May through late June, investor buyer numbers dropped 31% compared to the previous nine weeks. That headline figure overstates the shift, though. Owner-occupiers also pulled back 24.5% over the same window, and total buyer numbers fell 26%. When the broader market slows, raw counts tell you less than share of activity.
Investor share fell, then steadied
Investor buyers made up 24.3% of auction participants in the period immediately before the budget. That share dropped to 20.7% in the four weeks to 27 June, the lowest four-week reading recorded this year. By the four weeks ending 18 July, it had climbed back to 23.2%.
That’s still below the pre-budget level and well below the 29% recorded over the same period last year. The recovery is real but incomplete, and some of it reflects continued weakness among owner-occupiers rather than a genuine surge in investor demand. The most recent four-week investor buyer count of 166 remains lower than the 181 recorded in the first four weeks after the budget.
What the new tax settings do
The May budget replaced the 50% capital gains tax discount with cost-base indexation and limited negative gearing to newly built properties from 1 July 2027. Existing investment properties are grandfathered under current rules, so any property held before that date retains both the CGT discount and negative gearing treatment.
The reforms were designed to redirect investor capital toward new supply. Early data suggested they succeeded in dampening investor appetite for established stock. Whether that effect sticks is the open question.
Investor vendor numbers also fell in step with buyer numbers after the budget. The ratio of investor buyers to investor vendors has held broadly steady at around 71-72 per 100 before and after the changes. No exodus is visible yet, which means grandfathered properties aren’t flooding the market. That limits downward price pressure but also means the supply side hasn’t budged.
Second-order effects and who this hits next
If investor participation continues to recover as total auction volumes pick up, the initial dampening effect may prove temporary. If it doesn’t, and investor share remains structurally lower, the knock-on effects will show up in rental supply first. Investors pulling back from established stock without redirecting capital to new builds means fewer rental properties enter the market over time.
Brokers with investor clients need to watch how serviceability calculations adjust as lenders reprice investment lending risk. If investor demand stays subdued, some lenders may tighten loan-to-value ratios or increase interest rate buffers for investment loans to offset higher perceived risk. Conversely, if competition for the shrinking pool of new builds heats up, brokers may see looser terms for construction loans.
Pressure points over the next four months
Three variables will determine whether this recovery is sustainable:
- Spring auction volumes. If total auction activity picks up in September and October as usual, investor share as a percentage will be the signal. If it climbs back toward 24-25%, the post-budget dip was noise. If it stays below 22%, the tax changes are biting.
- Rental vacancy rates. If investors stay on the sidelines and vacancies tighten further, rental yields will rise, which could pull investors back in despite the tax settings. If vacancies loosen, the return case weakens.
- Construction starts for new builds. If investor capital genuinely shifts toward new supply, construction finance approvals for small-scale residential projects should tick up. If they don’t, the policy isn’t redirecting capital, just reducing it.
Base case and what could derail it
The base case is a slow grind higher in investor participation as buyers adjust to the new settings and focus on maximising the value of grandfathered properties. Downside risks include further serviceability tightening if the Reserve Bank holds rates higher for longer, or a sharper-than-expected slowdown in owner-occupier activity that pulls total auction volumes down and drags investor numbers with them.
Upside scenario: rental yields rise enough to offset the tax changes, pulling investors back in at higher rates than before the budget. That would require vacancy rates to fall below 1.5% in major metro markets and stay there through summer.
What this means if you’re deciding now
If you’re holding grandfathered investment properties, nothing fundamental has changed in the past two months. The tax settings you bought under remain in place. If you’re considering a new investment, the practical question is whether the after-tax return on a new build justifies the higher upfront cost and construction risk compared to established stock. For most investors, the answer depends on your marginal tax rate and the specific rental yield gap between new and established properties in your target market.
For context on how other recent tax changes are affecting property investors, see Sydney Property Investors Freeze as Tax Shock Hits Prices and SMSF Residential Property Ban Takes Effect: What Changes for Trustees.
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General info, not financial advice.
