End of financial year market review – John McGrath

As we enter a new financial year, it’s a good time to reflect on what the property market has experienced in the past 12 months, and especially in the first half of 2026.

Real estate conditions have undoubtedly softened, with this slow down beginning in late 2025. Key to this change is the Middle East conflict, stubbornly high inflation, and most recently, the Federal Budget changes to investment.

Yet our long-term, high-performing locations continue to offer excellent results.

As a result, we’re experiencing a two-speed, or even three-speed, market.

According to Cotality’s latest Home Value Index (HVI), Brisbane, Adelaide and Perth’s strong performance has endured, even as national figures flatline. Brisbane and Perth’s median values are now just above $1 million. With its $950,703 figure following a 12.3% yearly upturn, Adelaide shows every indication it will soon join the $1 million club.

At the other end of the market, Sydney is leading the recent downturn, with annual medians only growing 2.3% to reach $1.282 million. Melbourne values are only 3.3% higher than those in May 2021; however, its excellent property supply safeguards its significant spot on Australia’s capital city property ladder.

Darwin is pushing ahead and is now second only to Perth for its annual growth. Hobart and Canberra’s respectable performances persist, with values increasing by 9.3% and 4.3% across the past year.

Regional markets are also resisting price pressure, with Cotality noting every location beyond our capital cities and their metropolitan suburbs is experiencing a peak period of high values.

Meanwhile, FY26 saw the Reserve Bank of Australia (RBA) hand out one tax 0.25% rate cut last August. Unfortunately, we’ve seen three simultaneous rate hikes in the past six months (February, March and May). The national cash rate now sits at 4.35%, a figure we haven’t experienced since December 2024.

There’s a chance we could see another rate increase this year, or in 2027, although Westpac is now the only one of the Big Four lenders predicting another increase in 2026.

As we head into the next financial year, one issue that deserves particular attention is the Federal Budget’s property investment changes. Handed down on May 12, both houses of Federal Parliament cleared the controversial Bill late last month.

It’s no secret that I’m very concerned about the Budget’s major reforms to capital gains tax and negative gearing for investors. Following so many other negative spirals lately, including

the Middle East conflict, these changes will definately impact potential investors, and renters.

So, we’re likely to see less investors in the market, which will place upward pressure on already high rents and struggling tenants, many of whom are potential first-home buyers.

Another possible outcome of the Federal Budget is that owner-occupiers will place greater emphasis on housing as an investment. They’ll either choose to channel more capital into their next home purchase, or upgrade, as confidence in the market improves.

Looking ahead, we will see short-term volatility, followed by longer-term stabilisation and recovery. The market has already begun adjusting with a material pullback, and anecdotal evidence suggests sharper declines than official data currently reflects.

I think we might also see a little bit more of a reduction in capital values in the second half of this calendar year.

Cotality's latest Pain and Gain report show vendors continue to experience significant resale gains. In the strongest result since 2005, 96% of national resales delivered a profit in the March quarter of this year.

In some good news for investors though, the rental market has enjoyed incredible growth since the pandemic. The latest national rent rise of 5.9% is the highest since September 2024.

The national vacancy rate is now just 1.5% in May, similar to the record lows we saw in 2022 and 2023.

Unfortunately, as house values drop, so too will gross rental yields, bar those in Melbourne, where yields of 3.87% are at their highest level since August 2013.

While recent changes and geopolitical aspects have changed the real estate outlook, there is still a high demand for property across the country, and rightly so. Regardless of global and domestic challenges, owning property remains one of the best ways to enjoy long-term financial prosperity and security.