New quarterly ABS lending indicators show a pullback in new investor home loans, with the total number falling 5.3% in the three months to March.
Value of investor loans also declined 3% over the quarter to $41.5 billion.
The decline forms part of a broader slowdown in housing finance, with total new home loan commitments down 6.2% over the quarter to 139,794.
Dr Mish Tan, ABS head of finance statistics, noted the decline followed two consecutive cash rate rises in February and March.
As it stands, the period of “strong” lending growth throughout 2025 was able to offset the quarterly dip recorded across all borrower types.
“Despite this quarter’s fall, lending activity remains at high levels, with total new home loans 8.6% higher than a year ago,” Dr Tan said.
Investor lending is still significantly higher than a year ago, rising 18.8% in loan numbers and 25.3% in value.
Will investors pull back further following changes to negative gearing, CGT?
Along with the easing in borrowing volumes, the average investor loan size also fell to around $709,000, lower compared to $717,000 in the previous quarter.
The latest data suggests a loss of momentum among property investors, coming just as the federal government unveiled significant changes to negative gearing and capital gains tax (CGT) in the 2026-27 budget.
How will the negative gearing reform impact investors
Under the federal budget handed down on May 12, negative gearing will be largely restricted to newly built residential properties from 1 July 2027.
Existing investment properties will be grandfathered, meaning current owners can continue to deduct rental losses against their income.
For investors purchasing established homes after the changes take effect, however, the rules will tighten considerably.
Losses will no longer be offset against wage income and instead can only be applied to future property-related income or gains.
How will the CGT reform impact investors
The government will also scrap the current 50% CGT discount and replace it with inflation-indexation, alongside a minimum 30% tax rate on real gains.
Investors in new builds will be able to choose between the 50% CGT discount or the new indexation arrangements.
Shift in investor behaviour likely
Economists and market analysts expect the changes to have a direct impact on investor lending trends over the coming years.
The government says the reforms are designed to “level the playing field” in the housing market and improve supply and, therefore, affordability for young Australians and first home buyers.
The intention is to shift investor demand away from established homes and encourage them to redirect their capital into new housing stock.
However, economists argue expected outcomes may not materialise.
“The changes to negative gearing and the CGT discount could result in a 5% or so fall in home prices in the short term as investors retreat due to a fall in the perceived after-tax return to property investment,” AMP chief economist Dr Shane Oliver said.
But he said it was “doubtful” these reforms would improve housing affordability over the longer term, and likely to make it harder for first home buyers to get into new housing as shortage of supply further drives prices up.
“Policies that reduce investor interest in property overall will likely lead to less housing supply, not more,” Dr Oliver said.
‘No sound modelling, just good vibes’
According to Treasury modelling, the combined reforms are expected to help around 75,000 Australians enter home ownership over a decade, or 7,500 per year.
However, the budget also flags the tax changes will reduce supply by 35,000 homes over a decade.
“At this rate, it’s far from the solution young voters were hoping for, particularly when you consider that at the same time, the Treasurer expects fewer homes being built as a result of these reforms,” REIQ CEO Antonia Mercorella said.
Ms Mercorella said it was a flawed theory that if there are fewer investors in future, aspiring first home buyers would immediately step in to fill the void.
She called the government’s argument “overly simplistic”, negating the reality that affordability is what’s really standing in the way of home ownership.
“In this case there’s no sound modelling on the overall impact of these complex reforms – just the ‘good vibes’ of addressing intergenerational equity,” Ms Mercorella said.
“It’s important to understand that properties sought by investors and owner occupiers are not always interchangeable.”
Rental prices to go up
Industry experts also expect the changes to negative gearing and CGT to adversely impact rental property supply.
“The cessation of negative gearing for established homes coupled with potentially less generous capital gains tax discounts, will almost certainly drive up rents,” Ms Mercorella said.
She argues, as aspiring homeowners pay more to put a roof over their head, they will have even less savings to get their foot onto the property ladder.
“The focus should be on supply,” she added.
“Increased supply drives better affordability and improves accessibility for first home buyers. These taxation reforms distract us from this critical goal.”
Image by Andrew Mead on Unsplash
