Property investors are signalling rising unease as the prospect of changes to capital gains tax (CGT) looms over the market. Research conducted by the Property Investment Professionals of Australia (PIPA) highlights that 35% of investors would consider exiting the property market if the CGT formula were altered in a way that increases the tax payable. Even the possibility of reform has already begun influencing investor behaviour, with sentiment shifting noticeably over the past 12 months.
PIPA’s survey shows that 19% of investors have already sold property in the past year due to concerns about potential federal tax changes. A further 50% of investors indicated they are contemplating selling in the next year or two if uncertainty continues. This behaviour underscores how sensitive the property market is to regulatory risk. When investors perceive policy changes as threatening, they may alter their strategies, potentially impacting both investment portfolios and broader housing supply.
The consequences of investor caution extend beyond property owners themselves. Rental markets are particularly vulnerable. PIPA Chair Cate Bakos explains that fewer investors in the market can reduce the available rental stock, leading to tighter vacancy rates and upward pressure on rents. In regions where vacancies are already low, even a modest withdrawal of investors could exacerbate rental affordability challenges, affecting tenants who rely on rental housing for access to schools, employment, and essential services.
Several factors highlight why investor confidence is so important. Investors typically contribute to the depth and liquidity of housing markets, providing both rental stock and competition in property sales. When investor participation declines, markets can become more vulnerable to volatility. Fewer investors often mean reduced competition at auctions and private sales, which can slow market activity and put pressure on prices in specific locations.
Investor sentiment is particularly critical in markets where population growth and migration trends are driving housing demand. Cities and regions experiencing rapid population increases require a consistent supply of rental properties. If investors retreat in response to tax reform or uncertainty, rental availability can shrink quickly, placing upward pressure on rents. This scenario places pressure on tenants, affordability, and the broader community.
The interplay between tax policy and market behaviour highlights the importance of confidence in the property sector. Property is highly sensitive to perceived regulatory risk, and even speculative changes to CGT can influence decision-making. When uncertainty rises, investors may delay purchases, sell existing holdings, or shift focus to other asset classes. This behaviour can ripple through both primary and secondary markets, affecting prices, rental yields, and transaction volumes.
Investor exits can also have long-term effects on market stability. While short-term sales may relieve some pricing pressure in highly competitive locations, a sustained reduction in investor participation reduces rental supply, limits buyer choice, and can amplify the impact of future economic shocks. Rental affordability becomes more volatile when the market is reliant on a smaller pool of participants, and tenants are the first to experience these pressures.
PIPA’s research demonstrates that confidence is not abstract—it drives tangible outcomes. Investor decisions, influenced by regulatory uncertainty, affect housing supply, rental availability, and market liquidity. Policymakers face a complex challenge in balancing fiscal reform with maintaining investor participation, as abrupt or poorly signalled changes can have immediate consequences. Clear communication and phased policy implementation are key to reducing market disruption while still achieving policy objectives.
The survey also reflects a broader shift in investor priorities. Many investors are increasingly cautious, focusing on long-term security and cash flow stability rather than chasing short-term capital gains. Even minor policy adjustments, when perceived as increasing risk or cost, can trigger behavioural changes such as pre-emptive sales or reduced investment activity. This underlines the need for careful planning and market monitoring by both investors and advisors.
From a rental market perspective, investor caution can have compounding effects. When properties are withdrawn from the market, vacancy rates tighten further, and competition for remaining rental stock intensifies. This scenario places pressure on rents, creating affordability challenges for tenants, particularly in high-demand cities and regions. Reduced investor activity can limit options for first-time renters and families seeking suitable accommodation close to employment and schools.
Ultimately, the research reinforces the interconnected nature of property markets. Capital gains tax policy is not only an investor issue—it has real, measurable impacts on tenants, housing availability, and market dynamics. Investors must navigate these risks carefully, balancing potential reforms with market opportunities, while policymakers must consider how changes will influence confidence, supply, and affordability.
