Fresh projections have pointed to considerable price falls in the southern capitals, unit resilience, and a tax-driven shift in investor demand.
Domain has used its financial year 2027 housing outlook to warn that Australia’s property cycle is entering a difficult new stage, with policy and rate shocks expected to drive national price falls and a major turn in investor behaviour.
Domain said the combination of rising rates and the federal government’s tax overhaul had fundamentally changed the backdrop for housing.
“Three rate hikes in the first half of 2026 have changed the landscape, and the federal budget’s changes introduce a structural shift on top of the cyclical one,” it said.
“Together, these forces are bearing down on household budgets, consumer confidence and the capacity to borrow.”
The group’s central forecast for dwelling values across the combined capitals for FY27 points to a modest decline.
It expects house prices to move within a band of roughly -2.5 to +1.5 per cent, with a small fall of about 0.5 per cent as the most likely outcome, while unit values are projected to rise by about 1.3 per cent.
Taken together, this implies an almost flat result for capital‑city dwellings, with Domain pencilling in a total combined‑capitals move of around -0.1 per cent.
Domain is forecasting total housing value declines of about 3.3 per cent in Sydney, 4.4 per cent in Melbourne, and 2 per cent in Canberra by June 2027.
In contrast, it expects Brisbane values to rise roughly 5.5 per cent, Adelaide about 6 per cent, and Perth around 7.4 per cent across FY27.
Domain said that the key issue for Brisbane, Adelaide, and Perth was the pace at which growth downshifts rather than outright declines.
“The question isn’t whether these markets continue to grow, but how much they slow,” it said
“Brisbane, Adelaide and Perth are forecast to remain in positive territory because of strong underlying demand and limited supply, but growth rates are expected to be a fraction of those recorded during the recent boom.”
Rates, borrowing power, and the federal budget squeeze
A major element of Domain’s outlook is how higher rates and new tax settings are interacting with lenders’ serviceability rules.
It said that the Reserve Bank’s 2026 tightening cycle had already significantly bitten into borrowing power.
“Three 25- basis-point rate increases have removed around 7–8 per cent of borrowing capacity – and the budget’s investor lending changes compound the squeeze, with lenders already cutting maximum investor loan sizes in response,” it said.
“With mortgage rates around current levels, borrowers are being assessed at close to 10 per cent under APRA’s mandatory serviceability buffer.”
The report said that the new rules for negative gearing and capital gains tax would redraw the investor map, with some states more at risk than others.
“The impact won’t be felt evenly across the country. States with the highest investor share of lending face the sharpest withdrawal of demand from established housing, namely NSW,” Domain said.
It said that Western Australia’s investor share of new lending was sitting at 39.1 per cent – about 14 percentage points above its decade average of 25.1 per cent – the largest gap in the country, while Queensland and South Australia were also flagged as stretched.
Domain’s view is that if sentiment sours as the tax changes bed down, “these markets are not insulated – they are exposed.”
Units to outpace houses as behaviour shifts
A major theme running through the report is the clear behavioural pivot from houses to units as borrowing power tightens.
Domain said the combination of reduced budgets, elevated uncertainty, and policy levers that favour cheaper stock would reshape buyer preferences through FY27.
“Buyers trade location for value, houses for units, and timelines for patience. That shift in behaviour sits at the heart of our forecast. The divergence matters most in Sydney, where units are expected to outperform houses by 4 ppt,” it said.
“Three powerful forces are colliding: the FHB scheme reaches units (especially for Sydney); reduced borrowing capacity; and the record 111 per cent house-to-unit premium is compressing as affordability bites.”
Domain expects units to outperform houses across Sydney, Brisbane, Melbourne, and Perth, and under its higher‑growth scenario, unit prices could hit new peaks in Sydney, Brisbane, Adelaide, and Perth even as house prices in the larger southern capitals edge lower.
It also said that Brisbane is on track to become the country’s most expensive unit market, while Melbourne’s median house price could drop back under $1 million for the first time since 2021.
[Related: Westpac forecasts investor slump as housing cycle turns]
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