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For the past three decades, buying a home in Sydney has been the surest bet in Australia. Rising prices have enriched families and made property the engine of household wealth. Now the boom is under threat, and the consequences are rippling across the financial system.<\/p>\n
Home values are sliding as borrowing costs rise and buyers react to the removal of tax incentives favouring property investments in the May budget. In Sydney, prices are down about 7% from their peak in February, according to the latest figures from property consultancy Cotality. Declines that started in the priciest neighbourhoods are spreading nationwide, with home values falling in 93% of suburbs in Australia\u2019s capital cities.<\/p>\n
The slump is hitting the nation\u2019s biggest banks, with mortgage applications dropping as much as 20% since the budget and one CEO saying \u201cvolatility and uncertainty\u201d were more structurally present than for decades. Last week, one of Sydney\u2019s biggest developers, Bathla Group, fell into insolvency owing A$3.3 billion ($2.4 billion) after borrowing heavily from private credit funds, spurring concern that more indebted builders could run into trouble.<\/p>\n
The challenge is an extreme version of the one facing governments around the world after decades of leverage-fuelled and state-sanctioned home price gains. Policymakers must figure out how to deflate frothy property markets and boost affordability, without derailing the economy at a time when inflationary pressures are driving up borrowing costs.<\/p>\n
The risk for Australia is any prolonged downturn could hit families in their pockets at an already tough time. A measure of consumer confidence fell to \u201cdeeply pessimistic\u201d levels in June. About 60% of household wealth is tied up with property, according to Commerzbank AG.<\/p>\n
\u201cPeople don\u2019t transact in a high-ticket item like property when they are not secure about their finances or the broader economy,\u201d said Nicola Powell, chief residential economist for Domain, an online property portal.<\/p>\n
The Australian government has been under increasing pressure to tackle housing affordability. In Sydney, the average home costs almost 14 times the annual disposable income, making it the world\u2019s second-most expensive city to buy property after Hong Kong, according to 2024 data from Demographia. Prices nationally have jumped about 67% in the past 10 years, with home values more than doubling in Brisbane, Adelaide and Perth, Cotality data shows.<\/p>\n
Treasurer Jim Chalmers targeted what he called the \u201cunfair\u201d status quo in the housing and tax system when he unveiled\u00a0rules on May 12 restricting\u00a0so-called negative gearing. Previously, if the cost of owning a rental property was higher than the income it generated, landlords could deduct this net loss from their personal taxable income, reducing their overall tax bill.\u00a0 Under the new regulations, which take effect from July 2027,\u00a0existing property purchased after May 12 no longer qualifies for negative gearing, although new builds still do.<\/p>\n
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The goal was to encourage construction of new supply\u00a0and make it easier for first-time buyers to enter the market by decreasing the appeal of investing in multiple homes.<\/p>\n
The market \u201cis going to be operating in a very different rhythm because you have seen policy change that impacts quite a large buyer cohort and first-time buyers are not large enough to replace investors,\u201d said Powell. \u201cWe are really yet to see the true impact\u00a0of fewer investors in the housing market.\u201d<\/p>\n
A property auction in Bexley, Sydney. Image: Isabella Moore\/Bloomberg<\/p>\n
Cotality\u2019s national home price gauge fell 0.9% in August in a fifth month of declines, taking the drop from the March peak to 3.6%. Prices slid 1.4% in Sydney that month. Transactions are also slumping: Home sales are down 15.5% from a year earlier, and 11.5% below the five-year average, according to the firm\u2019s quarterly estimates. Brisbane, Perth and Sydney have had the biggest declines in sales, with volumes down more than 20% year-on-year, it said.<\/p>\n
Properties are also taking longer to sell, meaning supply is elevated. In the four weeks through 30 August, capital city listings were 24% higher than a year ago and 8% above the five-year average, Cotality data shows.<\/p>\n
\u201cSydney continues to lead the downturn,\u201d said Tim Lawless, research director at Cotality. \u201cThe combination of a sharp drop in demand and higher than average advertised stock levels is weighing more heavily on Australia\u2019s largest housing market.\u201d<\/p>\n
Yet rising interest rates mean homes aren\u2019t getting more affordable even as prices decline. The Reserve Bank of Australia has hiked three times this year to lift the cash rate to 4.35%, up from 0.1% as recently as early 2022. Unlike the US, where homebuyers typically take out 30-year fixed mortgages, less than 5% of Australian mortgages are on fixed terms, according to the RBA \u2014 meaning any increase in the cash rate feeds into their monthly repayments.<\/p>\n
Elevated inflation limits the support the central bank can give the housing market. The RBA is widely expected to hike again as early as September, with one Deutsche Bank AG economist calling underlying inflation \u201cintolerably high.\u201d<\/p>\n
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The shifting environment means the calculus has changed for residential real estate investors. Just six weeks before the budget, Chris Hanna bought his fourth investment property, adding to a roughly A$6.5 million portfolio spread across Sydney\u2019s west.<\/p>\n
While the 33-year-old considers himself lucky that his purchase won\u2019t fall under new tax rules, Hanna estimates it\u2019s dropped in value from about A$1 million to A$960 000. Instead of buying a fifth property as he previously planned, he is considering selling one or two of his homes.<\/p>\n
It\u2019s a sharp reversal from when Hanna bought his first property in 2019. Low borrowing costs meant the investment was largely paying for itself, while rising values encouraged him to keep buying. \u201cWith interest rates and everything, it\u2019s getting hard to manage a large portfolio like this,\u201d he said, adding that another quarter-point rate increase would cost him an extra couple of thousand dollars a month.<\/p>\n
Gerry Bronn had planned to buy two or three residential properties in Australia over the course of a year, adding to investments including his home and a commercial property. Instead, he parked the few hundred thousand dollars he saved for the deposits into AI and semiconductor shares, among others, while he waited for a better time to invest in real estate.<\/p>\n
Residential property had previously seemed like a \u201cno-brainer,\u201d Bronn said, but the expected returns no longer looked compelling. He now expects to wait at least six months before reconsidering. \u201cWe want to time the market so that we\u2019re not basically buying on the downswing,\u201d he said.<\/p>\n
There is a view that the downturn could prove fleeting, like others in the past, with Sydney\u2019s chronic housing shortage and targeted support for first-time buyers helping limit declines.<\/p>\n
\u201cI think property prices will keep falling into the June quarter and then you\u2019ll probably see the RBA making noises about potentially cutting interest rates through the second half of next year,\u201d said Shane Oliver, chief economist at AMP. \u201cThat will then set the scene for some sort of rebound in property prices through 2027 and 2028.\u201d<\/p>\n
Yet there are few recent examples of countries that have tried to tackle overheated housing markets without seeing a sustained slump. China is five years into a property crisis that\u2019s weighed heavily on the economy. New Zealand, once home to one of the world\u2019s biggest housing booms, is in the grip of the prolonged downturn that\u2019s dragging on growth. A 20% plunge in Canadian home prices isn\u2019t far enough for many priced out of the market.<\/p>\n
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The recent declines in Sydney aren\u2019t making homes look much more affordable to Jahra Mortimer, a first-home buyer in his early 30s. He began looking for a two-bedroom home with his partner a few months ago, with financial assistance from their parents. \u201cI definitely feel like the properties are still too high,\u201d said Mortimer. \u201cIt\u2019s scary for somebody who doesn\u2019t have any injection of cash like that to purchase, because it\u2019s so expensive.\u201d<\/p>\n
As for sellers, dwindling interest means some are taking whatever offers they can get.<\/p>\n
Mark Kownacki listed his sprawling farmhouse in the Sydney suburb of Castle Hill in March after agreeing to buy another family home on the coast. He thought the 90-day settlement on the new purchase would give him plenty of time to sell, but the energy shock sparked by the US-Iran war, rising interest rates and changes in negative gearing disrupted that plan.<\/p>\n
\u201cWe did an open house every Saturday. If we got one person through, we were doing really well,\u201d he said.<\/p>\n
With the settlement deadline approaching and the family already using bridging finance, Kownacki lowered the price by A$300 000 to A$400 000 from what he had originally targeted in order to make a quick sale at auction, where there was just one interested bidder.<\/p>\n
\u201cWe decided to take the money and run,\u201d he said.<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#worlds #longest #housing #booms #cracking #Sydney<\/p>\n","protected":false},"excerpt":{"rendered":"
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