ANZ warns Sydney house prices may fall 14.5%

By Elias Thorne · 2026-08-11

The rate decision that closed the exit

On 11 August 2026, the Reserve Bank of Australia left the cash rate at 4.35 per cent, citing inflation still too high to allow a cut before late 2027.^[1] For property investors across the country, the decision confirmed what months of signals had pointed to: the door to cheaper money stays shut into 2027.

The cash rate had sat at 4.35 per cent since the end of a ten-hike cycle that lifted it from 0.10 per cent in mid-2022.^[1] Investors counting on rate relief before the May budget's tax changes took effect in July 2027 now face both headwinds at once.

ANZ's number and what sits behind it

ANZ's worst-case scenario for Sydney puts the peak-to-trough decline at 14.5 per cent, which would be the largest nominal drop in that city since the early 1980s, when tighter credit and surging interest rates briefly collapsed prices before the tax settings that have since underpinned the market were put in place. NAB has projected a 5 per cent national decline. The spread between those two figures reflects how much uncertainty sits in the analysis.

From 1 July 2027, net rental losses on existing residential investment properties acquired before 7:30 pm AEST on 12 May 2026 will no longer be deductible against other income, including wages.^[2] That single change rewrites the financial case for holding a negatively geared property.

The second reform compounds the first. From the same date, the 50 per cent capital gains tax discount on real property will be replaced with inflation-adjusted cost-base indexation and a minimum 30 per cent tax rate on realised gains.^[3] Investors who bought in a lower-rate, lower-tax era and planned to exit on the back of a rate cut will now crystallise gains taxed more heavily than at any point since 1999, when the 50 per cent discount was introduced.

The tax architecture that built the boom

The May 2026 federal budget enacted the most significant housing tax reforms in a generation. Negative gearing on established homes is limited to new builds; the longstanding 50 per cent CGT discount on real property gains is gone.^[3] Together, those two settings had channelled private capital into established housing for more than two decades, underpinning demand at exactly the part of the market now exposed to the largest correction.

The policy rationale is supply. Retaining tax concessions for new builds is designed to redirect investor capital toward construction rather than existing stock. Whether that mechanism fires fast enough to offset the demand shock to established properties is the core empirical question neither the government's modelling nor the bank forecasts have resolved.

The data already moving

The Cotality Home Value Index for all of Australia fell 0.4 per cent in June 2026, following declines of 0.3 per cent in May and 0.1 per cent in April, marking the largest monthly drop since December 2022.^[4] Three consecutive months of falls, each steeper than the last, suggest the market is not digesting the tax changes slowly.

Westpac's head of Australian macro-forecasting Matthew Hassan said new investor activity in the housing market is forecast to drop by 34 per cent following the government's changes to capital gains tax and negative gearing.^[5] Westpac is also projecting total real estate transaction volumes will slide by 20 per cent in the near term.^[5]

A 34 per cent drop in new investor activity is not a marginal adjustment. Investors have been responsible for a sustained share of purchase demand in Sydney and Brisbane particularly; the withdrawal of that cohort at scale is the mechanism behind ANZ's 14.5 per cent forecast, not a separate factor sitting alongside it.

The rate timeline and why it matters

Capital Economics senior economist Abhijit Surya said his firm had pencilled in rate cuts for the second half of 2027, with the RBA likely to proceed cautiously.^[6]

August 2027, at the earliest. The tax changes take effect from 1 July 2027, meaning the new CGT and negative gearing rules will be live before the first anticipated rate cut arrives.^[1] Any investor who sells ahead of the rule change to avoid the new CGT treatment is selling into a market already pricing in those rules, because buyers are discounting accordingly.

Borrowers on variable rates remain at 4.35 per cent with no reduction in sight. Investors carrying negatively geared portfolios at current servicing costs face compounding holding-cost pressure, with no near-term tax offset and no rate relief to narrow the gap.

What the floor looks like from here

The range of bank forecasts, NAB at minus 5 per cent nationally and ANZ at minus 14.5 per cent for Sydney in a worst case, reflects genuine uncertainty about how investor exit behaviour will unfold. If selling is orderly and spread across 2026 and 2027, the downside is closer to NAB's number. If investors concentrate disposals before July 2027 to lock in the existing CGT treatment, the supply shock could be sharp enough to pull prices toward ANZ's estimate.

The Cotality sequential data, minus 0.1 per cent in April, minus 0.3 per cent in May, minus 0.4 per cent in June, does not yet resolve that question.^[4] The direction of travel is consistent and the pace is accelerating, not stabilising, with the July 2027 tax commencement date now less than twelve months away.

Elias Thorne

Elias Thorne writes about interest rates, the bond market and the Reserve Bank. He is interested in what monetary policy actually does to household budgets, and in the long stretches of economic history that tend to repeat.