The Australian Property Market Is Falling. Here Is When It Will Recover And Why | APS166

Cotality's national home value index fell 0.7% in July, the biggest single-month fall since December 2022. Five of Australia's eight capital cities are falling, and that now includes Brisbane, Adelaide, and even Perth, whose June figure was revised down into negative territory. On Tuesday the Reserve Bank left the cash rate at 4.35%, and all four major banks now say there'll be no cut this year. And the consultation on the Tranche 2 of the capital gains tax reform closes in a few days.

If you own an investment property, or you're thinking about buying one, there's a lot in today's episode. How hard will Melbourne bounce when it turns, and when does this market actually bottom out? The market is moving faster than it was, and your decision window is narrowing.

July: The Decline Goes National

July was the month this downturn stopped being a two-tier story. The national median value sits at around $930,000, and values are down roughly 2% from the March peak. Annual growth has dropped from over 10% in January to just above 5%.

Sydney values fell 1.4%. The city peaked in January, and the slide is speeding up. Sydney runs on finance and services, so it's unusually rate-sensitive, and its prices were the highest to begin with. The extra 0.75% in rate hikes this year has knocked $70,000 to $100,000 off what a dual-income household can borrow. Buyers who couldn't afford Sydney are even further out of reach, and the ones who can afford it are waiting.

Melbourne fell 1.2% and has been falling since December, with no sign of a floor. Melbourne's problem runs deeper than Sydney's, because it has barely moved since the start of 2023, while values in Perth and Brisbane doubled.

The mid-sized capitals surprised me this month. Brisbane fell 0.6%, its first negative month in this cycle. Last month it was still edging up, and now it's turned. Adelaide fell just 0.2%, but the direction has flipped. Perth looks like it rose 0.1%, except Cotality revised the June figure down to minus 0.5%, so the quarterly trend is negative. Perth's annual growth still reads 20%, and all of it was banked earlier in the year.

Darwin is still edging up and Canberra fell 1%, while Hobart's growth run since September 2025 has ended. But it gets worse, because the regional areas are falling too. Regional values fell 0.2% in July, the first fall since January 2023, with regional New South Wales down 0.4% and regional Victoria and Queensland going the same way. People used to say the capitals fall and the regions hold. That's not true anymore.

The auction market shows the mood better than any index does. National clearance rates came in at around 50% last week, where they've sat for 13 weeks straight, with Sydney at 45%, Melbourne 55%, and Brisbane only 37%. Brisbane's 37% looks alarming, but it's partly because the confident sellers have pulled back — the ones still listing are the ones who have to sell, and buyers know it. The market has settled into a standoff.

The Economic Headwinds Aren't Easing

The economy behind those numbers isn't giving the property market anything to work with. The June figures put headline inflation at 3.8% for the year. Core inflation came in at 3.6%, and that's the trimmed mean the RBA watches most closely. Both sit above the 2% to 3% target band, and inflation is coming down far too slowly.

Electricity prices came down slightly in July, but they're still more than 20% higher than a year ago, because the government's energy rebates have expired. Petrol has stayed high through the conflict in the Middle East. Households are spending more on day-to-day expenses, leaving less to put aside for a deposit.

With the economy where it is, what the RBA does next matters more than usual. Tuesday's decision was a hold, with good news and bad news in equal measure.

The RBA Refuses to Move

The Reserve Bank has decided that sitting still is its safest option. On August 11th the board voted unanimously to leave the cash rate at 4.35%, the second consecutive hold after three hikes earlier this year that took the cash rate from 3.6% to 4.35% and knocked tens of thousands off household borrowing capacity.

The bad news sits in the language of the statement. The Governor said at the press conference that inflation is still too high, and the bank keeps further rises on the table.

Three things in that statement stand out. The labour market is slowing faster than the bank expected. Momentum in housing has turned, with new home loan applications dropping sharply. And the conflict in the Middle East keeps pushing energy costs up, which is the main upside risk to inflation.

The RBA's August forecasts have unemployment at 4.5% by the end of this year and close to 5% by 2028, with GDP growth of just 1.4%. That's a weak economy, and it isn't a hard landing. Core inflation doesn't reach 2.6% until early 2028, which is a very long wait.

My read is that the RBA is in an awkward spot. If it doesn't cut, the economy keeps weakening and values keep falling. If it does cut, inflation is still above 3% and could turn back up. So the most likely outcome is that it holds until inflation comes down. Finder's survey still has 44% of economists expecting one more rise this year, so there's no consensus that this hiking cycle is over.

The RBA's position is clear, and the big four banks' forecasts tell you when to expect a lower rate.

What the Big Four Expect

The big four banks now agree there'll be no rate cut this year. NAB was the first to call the peak, with cuts starting from mid-2027 and the cash rate at 3.6% by the end of that year. CBA sits close to that, with cuts from 2027. ANZ thinks rates have probably peaked, but it hasn't ruled out one more hike in November. In late July, Westpac pulled its call for two more hikes — but it doesn't expect cuts either.

Even NAB, the most optimistic of the four, has you waiting until the middle of next year, which is close to a year of high rates from here.

ANZ also published a housing forecast, with capital city values falling around 4% this year and another 3% to 4% next year, close to 10% peak to trough. CBA estimates that negative gearing and CGT reform alone will take about 3% off values, and NAB has downgraded its price and credit forecasts too. The three forecasts disagree on size, but they point the same way: more adjustment now, with the recovery waiting on rate cuts.

That brings me to the part of today's episode that matters most. This one runs deeper than interest rates, and most people haven't caught up with it yet.

Want to know exactly where you stand and what your next property move should be? Book a VISION Blueprint Session — in 45 minutes, you'll walk away with a personalised Property Investment Blueprint built around your numbers, your goals, and your timeline. And if you want ongoing support from a team that handles everything from strategy to settlement, VISION Gold Membership is your next step. Link in the description below.

CGT Reform Tranche 2

The capital gains tax and negative gearing reform will quietly reshape how Australians hold property. On budget night, May 12th, the federal government announced major changes to negative gearing and capital gains tax. Tranche 1 passed both houses on June 25th, received Royal Assent the next day, and it's law now. It built the framework but left gaps in a lot of situations ordinary Australians actually face. Tranche 2 is the patch, published on August 4th, and submissions close on August 21st. That's only a few days away.

The first fix covers what happens when a spouse dies. Say you and your spouse hold an investment property as joint tenants, bought in 2020, well before budget night, so it qualified for negative gearing. Under the old rules, when your spouse passes away, the ATO treats you as if you bought their share on the date of death — and if that date falls after budget night, the negative gearing on it is gone. Tranche 2 keeps the original acquisition date on the inherited share, so what people call the widow's tax is gone now.

The second fix covers divorce. If a court awards you an investment property held in your former spouse's name, and it was bought before budget night, you inherit that timestamp, and negative gearing eligibility survives the settlement.

The third fix covers turning your own home into a rental. Say you bought your own home in 2020, moved out later, and now rent it out. The existing law resets your acquisition date to the day the property first produced income, which strips away your negative gearing. Tranche 2 ignores that reset when working out whether your rental losses get quarantined — that is, whether negative gearing still applies — so your original purchase date is what counts. Negative gearing survives the switch if the property was new when you bought it, and it survives too if it was established and bought before the reform.

On the capital gains tax side, three points matter most. First, in both the divorce scenario and the main-home-to-rental scenario, the same logic applies to your choice of CGT concession method on a new build — the original timestamp carries through.

Second, investors holding new residential property through a trust finally have a clear rule. Tranche 1 dealt with the choice of CGT concession method only at the individual level, and Tranche 2 extends that choice to trusts selling new residential property. For anyone holding new builds through a family trust, that's a big win.

Third, beneficiaries of a testamentary trust are exempt from the 30% minimum tax on capital gains, so a gain distributed to them escapes that floor. The assets do have to come from the estate, so parking unrelated assets there won't avoid the tax.

One more rule speaks directly to people buying new: the 24-month window. Say you buy an apartment from a developer. It still counts as new, as long as two things are true: the developer hasn't sold it before, and you settle within 24 months of the certificate of occupancy. You can negatively gear it, and you can choose the 50% CGT discount. Another big win for new properties.

The reform draws a line at June 30th, 2027. Any capital gain you make on a property gets split at that date, with each side taxed under different rules. The government has published a nine-step apportioning formula that estimates your property's value on that day, so you don't need to pay for a formal valuation.

When Does the Market Bottom?

A lot of people have lost confidence in Australian property, and the long-run record says something different. According to Cotality, national values have fallen in only six of the past 40 years, 15% of the time, and every fall has been followed by years of growth. That's the thinking behind our 541 Rule: 50% is location, 40% is how long you hold, and 10% is when you buy.

The headwinds are real. Rates are high, the CGT reform has knocked investor sentiment, consumer confidence is near a historic low, and the price-to-income ratio is close to its record high. The floor under values hasn't gone anywhere either. Building approvals came in at just over 200,000 last financial year — the National Housing Accord needs 240,000 a year to hit its five-year target, and we're not even close. Unemployment is rising and still low at 4.4%, so most mortgage holders are still keeping up with repayments and no wave of forced selling is coming. Construction costs are high, so new supply can't lift quickly. I'm not saying the adjustment is over. I'm saying the odds of a full-scale crash are close to zero, and supply, employment, and build costs are the reason.

My own call is that this cycle turns in the first quarter of 2027, for three reasons. The first is rates. If the cash rate comes down in the second quarter of next year, the market will price it in ahead of time, lending will loosen up, and experienced investors get a very good window to move.

The second is the length of the cycle. Since the pandemic the Australian market has run three cycles in six years, and the downtrends have lasted six to 18 months. This one started around March, which puts the first quarter of next year right in that range.

The third is politics. If the Liberal Party wins the Victorian election in November, investor confidence gets a lift. Add policy that supports the economy and loosens the settings around property investment, and a rebound is the normal outcome. Melbourne's median value is just above $790,000 and Sydney's is $1.24 million, so Melbourne could rise 50% and still trail Sydney.

Here are three things I'd suggest you do under the current market conditions. First, stress test your borrowing at 4.85%. The cash rate is 4.35% today, so that's half a percent above where we are, and you should model your cash flow at the worst case, not the rate you're paying today.

Second, the CGT reform has made the tax case for new property even stronger, because negative gearing still works on it and the CGT discount is still available. If you were already thinking about an investment property, new property should be your first choice.

Third, choose your city by the supply gap. Every capital market is in a correction phase, and cities where supply is tight recover faster. The opportunity in Sydney and Melbourne may not arrive until expectations for a rate cut firm up next year. Brisbane is adjusting now, and the Olympic build-out and the population growth haven't gone anywhere. Perth's resource economy gives it a firmer floor.

The Australian property market moved into a broad adjustment in July 2026, and the long-term support underneath it hasn't shifted. Short-term, it rises and falls, and long-term it only rises. Rates, tax reform, and weak confidence are all weighing on the market at once, so what you need to watch isn't the next month or two, it's the next five to ten years.

Watch the video version of the blog on YouTube.

15 Minutes Free Consultation (Limited-Time Free Offer)

If you have any questions about Australian real estate, we invite you to use our 15 Minutes Free Consultation service. Once you have filled in the form, a professional property investment strategist will be in touch with you. They will assess your needs and provide fundamental advice. This service is designed to help answer general property-related queries. BOOK NOW.

VISION Membership

Our Flagship Service: VISION Membership. Your One-Stop Property Investment Manager – Build a Tailored Portfolio and Achieve Financial Freedom

Whether you're an employee, a professional, a business owner or even a new migrant, everyone has a financial goal for the future. The VISION Membership is designed to solve all the pain points in your Australian property investment journey through one single, comprehensive service.

By analysing your current financial situation and long-term goals, we'll tailor a property investment plan just for you. Our team will match you with the ideal mortgage structure, tax strategies, wealth planning, and legal support, empowering you to go further, faster, and smarter on your path to financial freedom.

VISION Membership is perfect for busy individuals who want a professional team to create, expand and manage their Australian investment portfolio. If you're looking for a dedicated team, including real estate investment experts, mortgage brokers, accountants, financial planners, and property solicitors, VISION Membership is your ideal solution.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

VISION Buyer’s Agent

No time for inspections? Tired of dealing with pushy selling agents? Unsure how much to offer or feeling nervous about auctions? Worried about buying the wrong property? If any of these sound like you, AusPropertyStrategy's Australia-wide VISION Buyer's Agent Service is here to help.

We provide end-to-end support to help you build an optimised property portfolio and achieve your financial goals—whether you're investing interstate, refinancing, or planning post-settlement leasing or resale. Our services cover everything from suburb research and property selection, to price negotiation, auction bidding, and post-settlement support.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

real estate australia,real estate investing,australian property,australian housing market,australian economy,australian property investment,australian property market,buying property,australian real estate,mortgage brokers brisbane,first home buyer,Australian Real Estate,Australian Real Estate Investment,Australian Property Investment,Real Estate Investment,Property Investment,Property Investment Australia,Passive Income,Positive Cash Flow,Australia Real Estate Investing,Australian Real Estate Investors,Australian Property Investors,Vision Wealth Mentors,Vision Real Estate Investors Australia,financial freedom, freedom through property investment,real estate investors,property investment,passive income,positive cash flow,real estate course,real estate courses,real estate training,australian property market,property investment brisbane,property investment sydney,melbourne property market,investing in brisbane,investing in melbourne,how to invest in property,buying properties,start investing in property,property investment strategy,how to buy investment property,property investing tips,best suburbs to invest in sydney,locations real estate,prime location,property growth by suburb,capital growth suburbs