Proposed negative gearing, CGT changes causing ‘mood of concern’
Westpac has recorded a 20% drop in housing investor loan applications over the past three weeks, the bank's head of consumer banking has confirmed, as the federal government's proposed overhaul of negative gearing and capital gains tax (CGT) rattles the property investment market.
Carolyn McCann, chief executive of consumer banking at Westpac, said in comments published by the AFR that the bank was seeing a pronounced shift in sentiment – though she was careful not to overstate the severity.
"I would call it a mood of concern rather than crisis," McCann told the AFR ahead of a strategy briefing on Thursday.
McCann attributed the pullback to multiple factors, citing the Budget, three Reserve Bank of Australia (RBA) rate rises this year and the impact of the Middle East conflict on fuel prices and household budgets
"When you put the three together, it's quite a lot of change," she said. "Customers and the community could be a bit concerned about the changing signals."
Announced as part of the 2026–27 Federal Budget on 12 May, the reforms – which are intended to apply from 1 July 2027 – will limit negative gearing for residential property investments to new builds and replace the 50% CGT discount with cost base indexation and a 30% minimum tax rate on capital gains.
As MPA previously reported, a Money.com.au survey found that 61% of property investors would reduce their market exposure if both reforms proceed, with 39% citing CGT changes and 22% citing negative gearing caps as their trigger.
Despite the sharp drop in investor applications, McCann indicated she expects supply-side constraints to limit any significant price falls.
"The dynamics of the market mean it won't be a dramatic decline," she said. "It will be a slowdown, and then pick up again. We are seeing owner-occupied holding up. The grandfathering of existing arrangements [with negative gearing] and exemption for new builds will soften the decline."
Westpac forecasts Sydney house prices will decline by 3% and Melbourne by 4% this year. Housing credit growth is expected to fall from 6.5% this financial year to 4.7% next year, before recovering to 5.2% in 2028.
The Budget legislation faces a rocky path through the Senate. Labor holds a strong majority in the House of Representatives with 94 seats but requires support from the Greens and/or crossbenchers to pass the proposed negative gearing and CGT reforms.
The bill has been referred to a Senate Economics Legislation Committee inquiry, with the government racing to pass the reforms before July 2.
The Greens have not guaranteed their Senate support, with treasury spokesman Senator Nick McKim warning that Labor has been "handed a historic opportunity to pass genuinely ambitious and progressive tax reform," cautioning that "tinkering around the edges is not going to cut it."
The opposition, meanwhile, has argued the changes were never put to voters at the 2025 federal election and has called for an election to give voters a say.
