Is the Australian property market heading for a downturn? Rising interest rates, housing tax changes and shifting buyer behaviour are creating headwinds, but the story isn’t the same everywhere. While some markets are expected to soften, select capital cities and regional areas are still positioned for growth, driven by tight housing supply, low vacancy rates and strong rental yields. This latest data from Cotality reveals where the opportunities are and it’s essential viewing for every property investor.
Buyer behaviour and repricing pressure
The downturn period will mark a period of uncertainty, caution and panic from investors who will need to take into account, changes to CGT and negative gearing when managing residential property purchases. These changes reflect a shift in the property investment space as aside from normal psychological behaviours of buyers from the previous eight periods of downturn, this ninth period will be heavily driven by cash flow and the resulting differences between old after-tax gaps and new after-tax gaps which will almost double for an investor.
Smart investors will be wise to assess and capitalise on opportunities that have higher yield to shrink the gap between pre-tax cash flow and after-tax cash flow.
With a fragmented property market, comes varied levels of purchasing options for investors across affordable, median and premium properties. To properly gauge the new after-tax gaps and repricing pressure risks for these property cases, let’s examine these three scenarios, with the assumptions that each property is purchased on an 80% LVR, 6.0 interest-only loan with the old rules assuming a 47% marginal tax rate and exclude depreciation and capital growth.
| Premium Case $2.0M purchase |
Median Case $1.0M purchase |
Affordable Case $600K purchase |
|
|---|---|---|---|
| Gross yield | 3.0% | 4.0% | 5.0% |
| Annual rent | $60,000 | $40,000 | $30,000 |
| Interest cost | -$96,000 | -$48,000 | -$28,800 |
| Other holding costs | -$20,000 | -$10,000 | -$6,000 |
| Pre-tax cash flow gap | -$56,000 | -$18,000 | -$4,800 |
| Old after-tax gap | -$29,680 | -$9,540 | -$2,544 |
| New after-tax gap | -$56,000 | -$18,000 | -$4,800 |
| Indicative repricing pressure? | High | Moderate | Low |
These three case types show where buyers have the upper hand in negotiating for lower prices due to the above differences.
Sellers who possess stronger yields and higher annual rent will be more advantageous compared to those who have lower gross yields.
- A premium case, where the new after-tax gap grows to -$56,000 ($-1,076.92 per week overall) for a $2.0M purchase, will see investors become far more conservative leading to buyers demanding larger discounts or switching to new build types. Select sellers will face higher repricing pressure to meet lower investor demand.
- A median case purchase of $1.0M will see the new after-gap-increase to -$18,000 (-$346.15 per week overall) but the stronger demand for higher-yield assets and new builds from investors will see these properties become more attractive and face moderate repricing pressures compared to the premium case. Buyers will be more selective and price sensitive if yields push below the 4.0% mark.
- Affordable purchase cases of $600K will see the after-tax gap increase to -$4,800 (-$92.31 per week overall) meaning investors will face lower repricing pressure and the stronger gross yields of 5.0% will be favorable for entry-level and mum-and-dad investors looking to have a secure side investment. This stepping stone investment may lead to a secondary premium purchase in the coming years.
The big question, where should investors buy in 2026-27?
Buyers are looking for a secure, sustainable investment. Most may choose to only buy in their capital city due to familiarity, but investors then miss out on crucial growth opportunities in regional areas and select metro capitals.
The below Cotality table demonstrates the impressive growth for the past 12 months with Regional WA, Perth, and Darwin surging between 19.8% – 23.9% in dwelling values. An investment of $200K for a $1M property in Perth (20% loan for 80% LVR) could have become $1.239M if an investor made an informed decision to do so just one year prior.
As the downturn period begins, we can see the early effects, with Australia as a whole declining by 0.4% for the past month however combined regionals grew by 0.3% and combined capitals declining by -0.6%. The usual suspects of Canberra, Melbourne and Sydney further declined for the past month, continuing a pattern that began in the three-months prior (And for Melbourne in particular, the downturn began 12 months ago).
Source: Cotality
Smart investors will be wise to invest in continuously growing markets within regional areas including Queensland, South Australia, Tasmania and Western Australia. These are due to tighter supply of housing, better yield outcomes and growing opportunities for remote work capabilities and sustained internal migration. Australians are also chasing more residential space; increased quality of life and value compared to the stress of metropolitan areas that have smaller housing options in terms of property sizing and space for the same amount of money.
Does this spell doom and gloom for all capitals? Of course not, Darwin, Perth, Hobart and Brisbane continued growing for the period of June 2026, albeit much smaller compared to the booming previous 12 months, but a success overall compared to Canberra, Melbourne and Sydney which has dipped in the past three months.
It’s critical to remember that high-value opportunities exist in every regional and capital area in Australia. Keen investors must look at the data to identify specific hot property areas by capital and region to make informed decisions and choices to be ahead of the upcoming downturn trend.
Suburb showdown
The below heatmaps from Cotality show the change in Home Value Index (HVI) over the previous 3-month period ranging from -6% decline to +6% growth and the current median value of each suburb in these capital cities
Sydney
Most suburbs dropped in values within the past three-months especially in expensive areas including North Sydney, Inner West, Sutherland Shire, Eastern Suburbs and Bankstown region.
Growth was seen in areas including Outer Western Sydney/Blue Mountains areas of Blackheath, Katoomba and Southern suburbs of Tahmoor, Nattai, Douglas Park and Helensburgh.
Melbourne
Similar to Sydney, the majority of suburbs within Melbourne dropped in values within the past three-months, with the most affected areas facing a decline in value also being the most expensive including Box Hill, Camberwell, Doncaster, Frankston, Glen Waverley, Mornington, Preston and Rosebud.
Growth was seen in minimal areas such as Ballan, Barwon Heads Daylesford, Gruyere and Macedon.
Adelaide
Most suburbs in Adelaide gained values in the past three months with select areas including Aldinga Beach, McLaren Vale, Morphett Vale, Nuriootpa and Willaimstown achieving 6%+ growth in value.
Decline of -3% to -6% was exhibited in Cheltenham, Grange, Henley Beach, Largs Bay, Semaphore Park, Tennyson and West Lakes.
Perth
The capital of the West saw growth for most suburbs in the area for the past three months with the average property growing by up to 6%. High performing suburbs include Beverley, Bindoon, Byford, Eglinton, Gingin, Lacelin, Northam and Rockingham.
Declines of -3% to -6% were recorded in Swanbourne and Mosman Park.
Brisbane
The sunny capital experienced growth in most suburbs with an average of 0-3%. Higher than average growth was recorded in suburbs including Pittsworth and Indooroopilly.
Declines of -3% to -6% were recorded in Milton, Paddington and Red Hill.
Darwin
The capital of the West saw growth for most suburbs in the area for the past three months with the average property growing by up to 6%. High performing suburbs include Beverley, Bindoon, Byford, Eglinton, Gingin, Lacelin, Northam and Rockingham.
Declines of -3% to -6% were recorded in Swanbourne and Mosman Park.
Don’t dwell on the past, the next 12 months show which cities are ripe for growth.
The previous three-months paint a unique path for each capital city and its descent into downturn or a ladder to upswing.
Sydney, Melbourne and Canberra will continue to decline overall while Brisbane, Adelaide, Darwin and Perth will experience combined growth for houses and units. Select suburbs in all capital will still continue to generate growth and on the flipside, some suburbs may still dampen in decline even if the average for that city paints a positive growth percentage.
These projected figures from Domain below, follow assumptions of a cash rate peak of 4.35% with a first cut of -25bp expected in Q2 2027. This is also based on even odds of a further rate hike in the second half of 2026.
| City | Houses range | Units range | Combined |
|---|---|---|---|
| Sydney | -7% to -3% | -3% to 1% | -3.3% |
| Melbourne | -8% to -4% | -3% to 1% | -4.4% |
| Brisbane | 3% to 7% | 5% to 9% | 5.5% |
| Adelaide | 4% to 8% | 4% to 8% | 6% |
| Perth | 5% to 9% | 7% to 11% | 7.4% |
| Canberra | -4% to 0% | -4% to 0% | -2% |
| Combined Capitals | -2.5% to 1.5% | -0.7% to 3.3% | 0.1% |
One last statistic to focus on from the above table is the fact that Units are projected to either increase in growth or slightly decrease less when compared to Houses for the same capital city. Savvy investors looking to enter the market in an affordable manner may choose to look at units in these cities for high yields and lower interest repayments.
What can I do?
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