Budget tax changes “killing confidence” as Canberra home values dip in May

Canberra property investors are starting to pull back from the market and consider redirecting capital into owner-occupied homes after changes to negative gearing and capital gains tax were announced in the Federal Budget.

Windrose Property Principal and Sales Agent Sam McGregor said the announcement was “killing confidence” in the market, as new Cotality data revealed a marginal drop in property values for May.

Sam said clawing back negative gearing and CGT discounts had prompted a change in thinking from investors, prospective investors and property owners with substantial equity in their homes.

“Not many people are looking to invest right now,” he said. “There’s going to be a change in strategy from wealthier owner-occupiers and there are a lot of people looking to make an upsize kind of purchase at the moment.

“If the market’s relatively soft, and capital gains tax and negative gearing don’t directly affect your primary residence, more people are thinking that instead of buying an investment property this year, they will renovate the house or buy a bigger one.

“These are the conversations I’m having with people, and I think it makes sense because there’s nowhere safe for your money other than the roof over your head at the moment.”

Under the tax changes, negative gearing benefits will be limited on established residential properties purchased after 7.30pm AEST on May 12, 2026, while newly built homes will continue to retain negative gearing incentives. Existing investment properties held before this date would remain exempt under the proposed transitional arrangements.

The Budget also proposed changes to capital gains tax from July 1, 2027, replacing the current 50% CGT discount with a cost base indexation model and minimum tax framework.

The latest Cotality Home Value Index, released on Monday, shows Canberra property values dropped by 0.2% in May after zero growth in April. ACT real estate has seen 4.3% growth across all dwelling types in the past year.

The median dwelling value in the ACT is now $890,555. Houses are $1.04 million and apartments and units $598,931.

The report shows a “multi-speed” market across Australia, with Perth continuing to sustain significant growth, alongside a general weakening of the housing cycle across most markets. Sydney and Melbourne led the downturn in May, closely followed by the ACT.

“This loss of momentum had been building for some time, well before interest rates started to rise, conflict escalated in Iran and taxation changes were announced in the Federal Budget,” the report said.

The Cotality report found lower price tiers are continuing to show stronger or more resilient conditions than the higher price tiers across most of the capitals, although the pace of growth is generally easing across the more affordable markets as well.

“While the speed of value change remains very different from city to city, the direction is becoming more consistent, with most markets losing momentum as demand-side headwinds intensify,” said Cotality Research Director Tim Lawless.

“Some cities are now recording falls across the lower quartile, including Sydney and Melbourne’s lower quartile houses, as well as both house and unit values across Canberra’s lower quartile.”

Sam said there would likely be further fragmentation of the Canberra property market at different price thresholds.

“Three months or six months ago, we were talking about how all the growth was happening the sub-$1 million bracket. Whilst a crystal ball doesn’t tell me where it’s going to happen, there’s going to be significantly different things happening at each different price point.

“That tells the story that there’s less confidence around now and the landscape is going to look very different over the next three to six months.

“We will start to see the impact of the government’s Budget flowing into the market because it’s clearly killing confidence. It’s fair to say that even though it’s a relatively small movement in terms of values (in May), we’re leading into winter and it’s not like there’s huge pressure on buyers at this time of the year anyway.

“What the numbers show is that there’s a tug-of-war going on between buyers and sellers, but there’s enough confidence that it’s still a decent time to buy and sell. It’s not a red-hot market either way.

“It will be an interesting run to the end of the year because while there’s not a lot of confidence around now that it’s a smart time to invest your money in property. If you look six to 12 months from now, maybe it’s the policy that takes the edge of inflation enough to make housing affordable for people again,” Sam said.