The Outlook For Property Investment in Australia: Here’s Why Investors Might Be Wrong About the CGT Impact

A month on from the unveiling of the CGT changes and it seems everyone thinks the outlook for property investment in Australia is a decline in house prices over the next 1-2 years. The government’s own modelling suggested a roughly 2% reduction in price growth over a couple of years. Analysts at various institutions (CBA, Westpac, Grattan, NAB and AMP just to name a few) have pointed to a similar outcome, with house prices eventually sitting around 3% lower than the no‑change scenario.

To our knowledge, the most bearish voice (and only vehemently bearish) has been MacroBusiness economist Leith van Onselen, who has argued that Australia could face its largest housing correction in decades. But even he notes that the biggest modern corrections have been around 8%. That is hardly a crash in a market that has risen more than 400% since the early 2000s.

But what if all those view will prove to be wrong? Not in the sense that the changes won’t negatively impact house prices – its hard to argue they won’t; but in the sense that the impact won’t be 1 or 2 bad years but then a return to growth, but rather a longer-term impact. And not necessarily in the sense that prices will fall consistently over a longer period of time, but there will be a ‘Lost Decade’ of growth. In our view, the forces that drive long‑run returns were already shifting, and the tax changes will merely accelerate them. We know its a controversial take, but hear us out.

Why The Longer-Term Outlook For Property Investment in Australia Is Cloudy

The tax changes reduce the after‑tax return for leveraged investors – Blind Fretty could tell you all that. But it is too simplistic to end there and just say,’ it’ll be a slow couple of years, but things will rebound’. Despite claims to the contrary and the likelihood of occasional cases, houses are not an asset you buy and flip in 12-24 months. It is a long-term decision – mortgages are 30 years.

When you compound slower demand growth over 10 years, the gap is larger than had it just been a year or two. A market growing at 3% instead of 5% does not feel dramatic in year one. But after a decade, the difference is more than 20%. It is this rather than any one‑off price decline that creates the lost‑decade risk.

Keep in mind, Australia enters this reform cycle with affordability at its worst level in decades. Mortgage repayments as a share of income are near record highs. The RBA has raised rates aggressively. Household debt remains among the highest in the world. In this environment, even small reductions in investor demand can have outsized effects on turnover, sentiment and liquidity. Analysts forecasting 3–5% national declines are not doing so because of the tax changes alone. They are layering the reforms on top of affordability pressures, higher rates and a market that has run hard for years. Sydney’s average peak‑to‑trough estimates of –3% to –6% reflect this cumulative pressure. A slow grind, if you will, rather than a crash.

One of the most interesting out‑of‑the‑box angles is that the biggest impact may be turnover rather than prices. No, it is not always the case that the two are directly correlated. If fewer investors buy and sell, transaction volumes fall meaning listings fall and liquidity dries up. This is exactly what happened in the UK after its 2016 stamp‑duty changes. Prices did not collapse, they simply underperformed for years. Australia could be heading for the same outcome.

So what could the next decade could look like?

The current modelling provides a useful framework. We noted that the government’s case is a 2% decline nationwide in 2 years but it could be up to a 4% decline in Sydney. Some banks and institutions call for 3-4% in Australia and up to 6% in Sydney, but only the most extreme bears go higher, with up to an 8% decline. But the market will rebound, right? Perhaps but it could be slower growth than would otherwise be the case, and over an entire decade, the compounding effect becomes the real story.

When we use the term lost decade, we are not by any means suggesting that prices fall for 10 years. It means prices rise more slowly than the alternatives. It means property underperforms equities, bonds, or even cash on a risk‑adjusted basis. It means the asset class that defined Australian wealth creation since 1999 becomes a laggard.

Equities compelling

It had been all but certain CGT changes would happen on property for months until the budget, although the hope was that other assets would be exempt and investment would be incentivised. Of course, that ship has sailed. But that doesn’t mean equities aren’t compelling – yes, even equities that don’t offer dividends.

Keep in mind Australia’s superannuation system continues to channel billions into equities every year. The guarantee rising to 12% in 2025 adds even more structural inflow. Australia’s listed companies are globally competitive, capital‑light and increasingly exposed to high‑growth sectors such as technology, healthcare and critical minerals. If property grows at 2–3% per year and equities grow at 6–8%, the relative performance gap becomes enormous. Over a decade, the difference compounds into a 50–80% divergence in total returns. This is how a lost decade in any asset manifests: not through falling prices, but through opportunity cost. But a lost decade for property in this manner could be a golden decade for equities!

Bottom line

For property investors, the implication is the days of double‑digit annual gains every year as well as low taxes on ‘flipping’ are over. The market will still grow, but more slowly, and the after‑tax return will be lower. Investors who rely on capital gains rather than yield will feel the shift most acutely.

For equity investors, the picture is more optimistic. Slower property returns make equities relatively more attractive. The superannuation system continues to funnel capital into listed markets. Australia’s corporate sector remains globally competitive. And the structural themes driving equity returns — AI, decarbonisation, defence, critical minerals, healthcare — are far stronger than the themes driving property.

For diversified investors, the message is not to abandon property, but instead to rebalance expectations. The next decade may not be defined by property booms. It may be defined by equity outperformance. And if that is the case, the CGT changes will not be remembered for causing a crash. They will be remembered for marking the end of an era, and the beginning of a new one.