Every conversation about the Sydney property market historically has centred around interest rates. And for good reason. The three consecutive rate rises earlier this year created uncertainty, borrowing capacity reduced, and buyers naturally became more cautious.
Then when rates paused, many people expected confidence to return. Historically, that's exactly what happens. Buyers begin to feel like they've got certainty again and activity starts picking up.
But that's not what we're seeing in 2026…
The changes to negative gearing, capital gains tax (CGT) and the removal of residential property from self-managed super fund (SMSF) investment strategies have effectively had the same impact as another interest rate rise. The rules have changed, investor confidence has dropped, and that has fundamentally altered parts of the Sydney property market.
The important thing to understand is that these changes don't affect everyone equally. They overwhelmingly impact investors.
For years, investors focused on Sydney purchasing properties between approximately $700,000 and $1.7 million had 3 major incentives:
- The 2 tax benefits of negative gearing and capital gains tax concessions
- Or the other option was to purchase residential investment property through an SMSF
With those incentives now removed, investors have simply stepped away from the market.
That has created a noticeable gap in buyer demand, particularly across one and two-bedroom apartments, townhouses, terraces and entry-level houses that traditionally appealed to investors looking for long-term capital growth and rental yield.