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Market update: How savvy investors are adapting to capital city roadblocks
Shifting affordability, borrowing constraints, and government tax reforms have created different opportunities across the major capitals, with investors needing to be more selective than ever.
A new analysis from multiple buyer’s agents has shown opportunities still remain across major capital cities as investor confidence takes a hit due to serviceability constraints and federal tax reforms.
According to the Property Investment Professionals of Australia (PIPA)’s July National Market Update, units, regions, and value-add strategies were becoming increasingly popular as investors navigated the shifting market.
PIPA chair, Cate Bakos, said, overall, the national market was cooling, but fundamentals such as infrastructure, affordability, and rental demand continued to underpin long-term resilience.
“The cycle is shifting from momentum-driven growth to selective and strategy-led opportunities,” she said.
Here’s what’s happening in the capital markets:
NSW
Right Property Group director, Victor Kumar, said Sydney’s residential market had moved into a clear cyclical downswing, with several indicators showing momentum had shifted.
He said that dwelling values had slipped from their November peak, and early-June clearance rates fell below 50 per cent for the first time since 2020.
“This softening is being felt most acutely in buyer behaviour, where sentiment has cooled following the federal budget and tightening credit condition,” Kumar said.
Meanwhile, he noted investor activity had fallen sharply, with inspection numbers thinning across the board, and many properties seeing fewer than five attendees.
“This is a meaningful change in market depth and reflects a more cautious and credit-sensitive buyer pool.”
He said sellers still remained optimistic, but buyers were pushing back more firmly as borrowing conditions tightened.
Despite the current slowdown, Victor said the underlying long-term fundamentals remained intact, with chronic housing undersupply, population growth and infrastructure driving demand.
“Overall, NSW is entering a recalibration phase. The slowdown is real, but structural drivers are strong.”
“The next growth cycle will be shaped by affordability, infrastructure delivery and the evolving relationship between buyer sentiment and credit conditions.”
Victoria
Gameplans head of strategy, Joey D’Agata, said while the Victorian property market still remained active, the landscape was changing, particularly when it came to investors.
“We’re seeing meaningful changes in where investors are buying, what they’re buying, and why, largely driven by the federal budget’s changes to negative gearing and the downstream effect on borrowing capacity,” D’Agata said.
“Perhaps the most significant behavioural shift we’re observing is a heightened sensitivity to cash flow.”
D’Agata said investors who may have previously purchased established houses in the $750,000 to $950,000 range, accepting lower yields, were now reconsidering due to scrapped negative gearing benefits.
“Without those tax advantages, the holding costs on lower-yielding Melbourne properties are proving harder to carry.”
Meanwhile, he said serviceability constraints meant someone who could previously secure finance at $900,000 may now find their ceiling closer to $650,000 to $700,000.
“This isn’t just a psychological shift; it’s now a structural one, and it’s reshaping purchasing decisions across the board.”
According to D’Agata, value-add strategies had become an increasingly common solution to issues around cash flow for those still wanting to buy in Melbourne.
“The ability to add a secondary dwelling and the additional rental income that comes with it, is helping investors neutralise negative cash flow positions that might otherwise be extremely negative.”
He also noted there was a two-fold, renewed interest in boutique, low-maintenance Melbourne apartments with limited stock, while townhouses and villas were also gaining favour.
D’Agata said one reason for the shift was that reduced borrowing capacity was pushing some investors into lower price points where apartments were the only viable option.
Secondly, he said yields in the apartment segment generally ranged from 5 to 6 per cent, becoming more attractive as cash flow had become the primary investment lens.
“With body corporate fees offsetting much of the maintenance liability, the net holding cost of a well-chosen boutique apartment is increasingly comparable to that of an older freestanding house.”
Queensland
According to Hotspotting director, Tim Graham, Queensland remained one of the nation’s most active property markets, but Greater Brisbane and Regional Queensland diverged significantly.
In Greater Brisbane, Graham said affordability pressures were constraining demand in the housing market, which was shifting attention towards the unit sector.
“Across Brisbane, Logan, Ipswich, and Moreton Bay, units are being supported by affordability pressures, stronger rental yields and very tight vacancy rates,” Graham said.
He said Inner Brisbane remained one of the more attractive markets for apartments, with major employment hubs, lifestyle amenities and Olympic infrastructure supporting demand.
However, he said the city was no longer a market where investors could simply buy anywhere and expect the same result, with asset selection, rental demand and price discipline being essential in the current market.
On the other hand, Graham said regional Queensland had some of the clearest opportunities emerging, with Rockhampton being the standout performer.
“House yields are around 5 per cent while units are achieving about 5.37 per cent, supported by low vacancies, solid affordability and a strengthening Central Queensland economy linked to resources, agriculture and infrastructure investment.”
He also noted that Mackay, Townsville, and Cairns were attracting attention, particularly in the unit sector where rental yields remained appealing.
“However, buyers need careful due diligence. Insurance risk, flood and cyclone exposure, and proximity to waterways or coastal areas should be assessed thoroughly before purchasing.”
According to Graham, Toowoomba remained one of the state’s most reliable inland regional markets, supported by its size, population base, health, education, agriculture and logistics links, including Wellcamp Airport.
“Overall, Queensland’s fundamentals remain strong, but the market is becoming more selective.”
“The best opportunities are likely to be found where affordability, yield, tight rental conditions, infrastructure, and economic diversity intersect.”
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