Australian property investors, driven by capital gains, are retreating as tightening interest rates and regulatory changes, such as the curbing of negative gearing and capital gains tax discounts, make lending harder and reduce potential returns. Over the past decade, four lending dips correlated with property value contractions. Experts predict short‑term market volatility and longer‑term shifts in investor sentiment, with higher stamp duty and holding costs further discouraging investment.
Property investors motivated by the potential for capital gains have exited the market when the chance of making money on their investment becomes pressured via interest rates or regulation, data shows.
Over the past 12 years, there have been four dips in the value of lending to investors, as they were unable to access credit during periods of tightening, according to Tim Lawless, Cotality’s executive research director. This has broadly tracked a skinnying in property prices.
“Australian property investors … the primary motivation tends to be opportunities for a capital gain. They tend to move with the cycles, almost perfectly,” Lawless said.
“They’ve really treated opportunities for cash flow, or yield, as an afterthought, probably because they know that they … previously can offset any sort of cash flow loss or rental loss on their tax income, their negative gearing strategy. ”, which confirmed plans to curb negative gearing and limit the capital gains tax discount to new build properties.
Some experts think these moves“It’ll be really interesting to see how the market reacts in these initial few months, but also in the longer term, when we look back in two years’ time or three years’ time,” said Sally Tindall, Canstar director of data insights.
“A lot of it’s driven by sentiment … particularly in investor lending and what they think the prospect of growth is in that property. ”Still, Lawless said the federal budget policy changes could have a negative impact on investor demand.
“I think there’s definitely going to be a portion of investors that simply choose not to invest in housing because it’s becoming too hard,” he said, noting that stamp duty or holding costs such as land taxes and council rates could also be disincentives. Some lenders have already updated brokers about changes to how negative gearing would be factored into serviceability calculations for established homes following the budget announcements.
“Potentially this most recent tax policy change could be the straw that breaks the camel’s back in some ways, and really disincentivises investment buying into the established market,” said Lawless. Indeed, property investors have exited the market before when faced with changes.
According to Cotality analysis, based on its own property value data and ABS lending data, investor lending has dipped four times since early 2014Drops in investor lending were due to a “mixture of cyclical and structural factors”, Lawless said, including the rise and fall of housing prices as well as credit or monetary policy moves. The first dip was in March 2016, when the value of investment lending fell by 28.4 per cent in 12 months.
The second was a slump that ran from March 2018 to June 2019, with the annual decline peaking at 28.3 per cent over the year ending March 2019. These two falls came after the Australian Prudential Regulation Authority, the banking regulator, put in place temporary rules designed to stem the flow of credit.
The first in late 2014, required banks to limit growth in investor loan growth to no more than 10 per cent a year, while a second policy, announced in early 2017, imposed a 30 per cent interest-only mortgage limit. KPMG urban economist Terry Rawnsley said following the 2017 cap, there was a shift away from investor lending for around three to four years.
“At the same time, property price growth eased, and state planning controls helped to halt the apartment market boom in Sydney and Melbourne,” he said. A third dip came in the 12 months ending March 2023, when the value of investor lending fell 31.6 per cent, which Lawless said coincided with interest rates starting to rise from emergency lows in May 2022 as well as COVID-era support being removed.
The fourth one was in June 2025, albeit still positive at 7.7 per cent growth over 12 months.
“Even though interest rates were still rising, the market rebounded pretty strongly through 2024, but just ran out of puff by the end of 2024, and it wasn’t really until interest rates came down in February 2025 that the market got revitalised,” Lawless said. More recently, investor lending pulled back in the March quarter, with the total value of new investor housing loans falling by $1.3 billion, or 3 per cent, over the first three months of the year, according to ABS data.
“Despite the dip, the value of new investor lending remains well above the levels a year ago, up 25 per cent year-on-year,” said Tindall.seeing fewer investors at auctions. Some mortgage brokers say potential buyers are pulling out of deals or looking at how to restructure their investments, as they try to understand how the budget policies may impact them.
“It definitely has got investors second guessing and reassessing,” said Matthew Mohl, head of private clients at mortgage broker Alcove Private. Mohl said for investors who want to maintain their strategy, buying new properties or off-the-plan may be “the only way forward on that front”. Lawless said going forward the “recipe for investment is probably going to have to change because investors won’t have the crutch of negative gearing to lean on. ”
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