A modest lift in auction activity offers little relief after months of Budget-driven caution
Investor participation in the housing market has ticked up slightly in recent weeks, but remains well down on pre-Budget levels after a torrid few months triggered by negative gearing changes and a subsequent ban on SMSF property borrowing.
The 12 May Budget's move to strip negative gearing from established property purchases was followed weeks later by a second blow: a ban on self-managed super funds using limited recourse borrowing arrangements (LRBAs) to buy residential property, struck as part of Labor's deal with the Greens to pass its Budget tax legislation through the Senate.
Peak industry bodies immediately warned the combined effect would hit the market harder than intended.
Indeed, investor lending took a belting after the federal Budget's changes to negative gearing, with Westpac recording a 20% drop in housing investor loan applications within three weeks of the announcement. Months on, participation has only partially recovered, and remains well down on pre-Budget levels.
Don’t overstate the recovery
New auction data from Ray White does show some positive movement.
Chief economist Nerida Conisbee's analysis of more than 64,000 auction campaigns found the investor buyer share climbing from a 2026 low of 20.7% in late June to 23.2% by mid-July.
But that figure remains below the pre-Budget level of 24.3% and well short of the 29% recorded over the same period last year – and some of the improvement reflects owner-occupier demand also softening, rather than investors genuinely returning to the market.
“The recovery should not be overstated,” said Coinsbee. “There were 166 investor buyers in the latest four weeks, compared with 149 in the four weeks ending 27 June, but still fewer than the 181 recorded in the first four complete weeks after the Budget. Some of the increase in investor share also reflects continued weakness among owner-occupiers rather than a strong rebound in investor demand.”
There has been even less change on the selling side, with investor vendor numbers falling by nearly a third post-Budget, broadly matching the decline in investor buyers. “There were 71 investor buyers for every 100 investor vendors before the Budget and 72 afterwards. There is no evidence of a post-Budget investor sell-off,” noted Coinsbee.
“The initial fall in investor participation suggests the Budget may have influenced buyer behaviour, at least temporarily. The subsequent recovery makes the longer-term impact less certain. We do not yet know whether investor participation will continue to rise as auction volumes recover, or whether the post-Budget decline will re-emerge.”
Demand has ‘largely stagnated’
the loan company director Simon Kahl (pictured), told MPA most of his investor clients "pressed the pause button” following the 12 May Budget, taking time to work through what the new negative gearing and CGT settings meant for their borrowing strategy and the type of property they should be targeting.
"We haven't yet seen a meaningful return to urgency among investors," Kahl said. "Activity has largely stagnated since the Budget, with a lot of prospective buyers sitting on the fence while they work through the detail."
However, activity could begin to recover as people gain greater certainty around the tax changes, their borrowing capacity and which type of property best suits their longer-term strategy, though that recovery "will be gradual and uneven”.
The clearest behavioural shift Kahl has seen is a pivot towards new construction. "Some investors who had previously been looking at established properties are now considering new builds," he said, pointing to the ongoing beneficial negative gearing treatment in that space.
"Investors haven't disappeared. They are simply doing more homework and taking a much more considered approach before committing."
A very different dynamic is building around the SMSF lending ban. "We have seen a very significant increase in enquiries from clients considering established residential property through an SMSF," Kahl said, amid a race to get viable transactions in place before the 10 August cut-off.
Read more: SMSF lending deadline approaches amid growing uncertainty
On the wider reform agenda, Kahl believes there is a legitimate policy objective in improving housing accessibility, but his concern is the implementation of these new measures.
“Ultimately, you can change the tax settings, but a housing shortage is solved by building more homes. Tax settings can influence investor behaviour and change where capital is directed, but the fundamental issue remains whether we are building enough homes to meet demand.”
Why Labor may see this as a win
For all the industry alarm, a softer investor market is arguably functioning exactly as intended.
Treasurer Jim Chalmers has been explicit that the Budget reforms are designed to shift the balance of the housing market away from investors and towards owner-occupiers, telling reporters the government wants to make housing and the tax system fairer for younger Australians locked out of ownership.
But property professionals are far less convinced the trade-off is worth it.
A survey of valuers, financiers and advisers found the overwhelming view was that the reforms would reduce investor participation "and do nothing to lift housing supply," according to Herron Todd White chief executive Peter Maloney, cited in MPA's reporting on predictions of an investor exodus.
The concern extends to renters. Money.com.au mortgage expert Nick Burgess warned that if investors pull back or sell, "that has real implications for rental prices, as fewer investment properties means fewer homes available to rent”.
