Cotaly Trims Australian Home Price Forecast to 5.1%

Property analysis firm Cotaly cut its forecast for Australian home price growth in the 2026 calendar year to 5.1% from a prior estimate of 6.8%. This revision, announced on 31 May 2026, is attributed directly to proposed reforms to negative gearing and capital gains tax concessions. The firm expects these fiscal changes to cool investor demand, a core driver of the A$11.1 trillion residential market.

Context — [why this matters now]

Australia's housing market has been adjusting to a higher interest rate environment, with the Reserve Bank of Australia's cash rate holding at 4.35% since November 2023. Despite this, national home values have continued to rise, supported by a persistent supply shortfall and strong immigration. The proposed tax reforms represent the first major policy intervention targeting residential investors in nearly a decade.

The last significant federal tax policy shift impacting housing was the 2018 royal commission into banking misconduct, which tightened investor lending standards. In the subsequent 12 months, national home price growth slowed from 6.2% in 2017 to a decline of 5.3% across 2018. The current proposal is more targeted than those broad credit restrictions, focusing on investor profitability rather than credit access. The catalyst is a federal budget seeking to rebalance tax concessions toward new supply and first-home buyers.

Data — [what the numbers show]

Cotaly's revised national home price growth forecast of 5.1% for 2026 contrasts with a more optimistic 7.2% forecast from competitor SQM Research and the 8.2% year-on-year growth recorded in 2025. The firm's state-level revisions are more pronounced in investor-heavy markets. Sydney's forecast was cut to 4.5% from 6.7%, while Melbourne's projection fell to 3.8% from 5.9%. Perth, with a stronger mining and resource sector, saw a smaller reduction to 6.2% from 7.1%.

Market	Prior 2026 Forecast	Revised 2026 Forecast	Change (bps)
National	6.8%	5.1%	-170 bps
Sydney	6.7%	4.5%	-220 bps
Melbourne	5.9%	3.8%	-210 bps
Perth	7.1%	6.2%	-90 bps

The 30-day interbank futures market now prices a 55% probability of an RBA rate cut by November 2026. The yield on the Australian 10-year government bond is 4.15%, below the current cash rate. The Australian Securities Exchange Financials Index is down 2.7% year-to-date, underperforming the broader ASX 200's 1.1% gain.

Analysis — [what it means for markets / sectors / tickers]

Second-order effects will likely concentrate in financial and real estate investment trust sectors. Major Australian banks like Commonwealth Bank (CBA), Westpac (WBC), and ANZ Group (ANZ) derive a significant portion of earnings from residential mortgage lending and investor loan books. A sustained slowdown in price appreciation and transaction volumes could pressure net interest margins and loan growth. Citi analysts estimate each 1% decline in national home price growth could reduce major bank earnings per share by 0.8-1.2%.

Real estate investment trusts focused on residential development, such as Mirvac Group (MGR) and Stockland (SGP), may face headwinds for landbank valuations and pre-sale demand. Conversely, REITs in industrial and commercial property, like Goodman Group (GMG), are less directly exposed. The primary counter-argument is that strong population growth and a structural housing deficit will absorb the policy impact, limiting price declines. Trading desks report increased short interest in bank sector ETFs, with flows moving toward defensive healthcare and consumer staples stocks on the ASX.

Outlook — [what to watch next]

The immediate catalyst is the finalization of the tax reform legislation, with a parliamentary vote expected by 31 July 2026. The RBA's next monetary policy meeting on 7 July will be scrutinized for any acknowledgment of the fiscal shift's potential dampening effect on inflation and growth. Key data releases include the June 2026 CoreLogic home value index on 1 July and Australian Bureau of Statistics housing finance data for May on 10 July.

A clear break below the 5% annualized growth threshold in the national index would validate Cotaly's bearish view. For bank shares, the ASX 200 Financials Index will find technical support at 6700 points, a level last tested in October 2025. A sustained move below this level could signal a broader sector re-rating. If the proposed reforms are diluted significantly in parliament, a swift rebound in investor sentiment toward property-exposed stocks is probable.

Frequently Asked Questions

What does negative gearing reform mean for current property investors?

Negative gearing allows investors to deduct rental property losses from their taxable income. Proposed reforms would limit these deductions, increasing the after-tax cost of holding a negatively geared property. For an investor in the 37% tax bracket with a A$10,000 annual loss, the current system provides a A$3,700 tax benefit. Limiting this deduction directly reduces investment returns, potentially making some existing holdings unviable and deterring new purchases.

How do Australian capital gains tax concessions work?

Australian residents who hold an asset for more than 12 months receive a 50% discount on capital gains tax. For a property investor selling with a A$200,000 gain, this means only A$100,000 is added to taxable income. Proposals suggest reducing this discount to 25%, thereby increasing the tax liability on investment property sales. This change targets the profitability of the investment exit, potentially lengthening holding periods and reducing market turnover.

Which Australian cities are most exposed to investor-driven price changes?

Sydney and Melbourne have the highest concentration of investor-owned properties, at approximately 32% and 29% of housing stock respectively. These markets have historically shown greater price volatility in response to lending and tax policy changes. Brisbane and Perth have lower investor shares, around 24% and 22%, and their markets are more influenced by local economic and commodity cycles. The divergence in Cotaly's revised forecasts reflects this differing exposure.

Bottom Line

Proposed tax reforms targeting property investors are set to cool Australian home price growth more sharply than interest rate policy alone.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.