Across Australia with Chris Smith - Negative Gearing, Rising Rents & Sydney’s Market Reality

On Across Australia, host Chris Smith is joined by Peter O’Malley to cut through the political noise surrounding negative gearing and capital gains tax reform. Rather than focusing on headlines, the discussion examines what’s actually unfolding on the ground across Sydney’s property market — from weakening auctions to rising rental pressure and shifting buyer behaviour.

They also discuss:

•  Why tax reform headlines don’t automatically trigger a housing crash 
•  Interest rate rises as the true driver behind falling property prices 
•  Immigration and population growth continuing to outpace housing supply 
•  Tenants bearing the brunt of tightening rental conditions 
•  How negative gearing changes could push rents even higher if investors exit 
•  Sydney auction clearance rates falling below 40% and what that signals 
•  Why buying before selling becomes especially risky in fragile markets 
•  The mindset shift required to identify value during downturn conditions

As always if there is a specific topic you would like for us to cover, please reach out and let us know!    

Transcript

Market Shaky And Tax Warning

SPEAKER_00 0:07

I've got plenty of callers on the open line. Do not go anywhere. I will get to your calls in just a minute. But the property market's already on shaky ground, as we know. Rent through the roof, first home buyers locked out, auctions falling flat, probably a little flatter than what you think. And now a warning that proposed tax changes tonight could send the whole thing backwards.

Will Tax Changes Trigger A Crash

SPEAKER_00 0:29

A report picked up by the Daily Mail shows that economist Leith Van Onselin warns proposed budget changes to negative gearing and capital gains tax could trigger a sharp housing slowdown. While supporters argue those reforms are exactly what's needed to cool prices and help younger Australians into homes. I've got enormous doubt on all of that. But anyway, so this is genuine a genuine economic warning. Or is it another case of the property industry crying wolf every time someone touches investor incentives? Let's bring in someone who watches this market every single day, not just in Sydney, but right across Australia, a true specialist in the field, real estate agent and analyst, Peter O'Malley from Harris Partners. Peter, welcome to the program. Let's start with the big headline. This talk of property sector crash, if changes are made to capital gains tax and negative gearing tonight. Is that realistic?

SPEAKER_01 1:26

Look, you never say never, but I wouldn't say this will cause a crash in and of itself. Prices are already falling and they will continue to fall a bit more. There's no doubt about that. If I go to uh Leith uh Van Onslan's comments, uh he says that uh the cause of this will be rising interest rates. Well, we can give that a tick. They're going up. Surging supply. We're not quite seeing surging supply in the Sydney market, Chris. Um so I I wouldn't I wouldn't agree with him on that point. And he says there's a weakening jobs outlook. Unemployment is still very tidy at the moment, and I think unemployment rate and the immigration numbers are the key to this market sustaining itself. If

Immigration And Rents Surging

SPEAKER_01 2:07

the government pull back on immigration, that would hurt the property market, and that's why the and the economy at large, for that matter, and that's why they're continuing to let 450,000 people a year into the country because it's masking their mismanagement of the economy. But if the unemployment rate went through 5%, that would spell trouble for property, yes.

SPEAKER_00 2:27

Just on that immigration pressure, um, there's debate about whether it does put direct pressure on supply and whether it puts pressure on demand as well. I can't see what the argument is to suggest that it has no bearing whatsoever on the real estate market. It has to.

SPEAKER_01 2:45

Oh, it does. If you answer our telephones in January or February here in the office, Chris, you'll just you you you will be faced with Chinese students phoning from mainland China trying to pay 12 months in advance rent. Now they're competing and taking properties off locals here, and that's why the Sydney rental market is up 7.4% for the year already. We're on track for 15% growth in the rental market this year. If and when uh negative gearing is scrapped, that will put further pressure, uh upward pressure on the rental market. So Jim Charmers uh is saying that uh he's getting rid of uh uh negative gearing to deal with the supply issue in the marketplace, but he has created excess demand. That is the issue. There's too many people coming into the country relative to the dwellings we have.

SPEAKER_00 3:34

I can't believe that you would get calls from mainland China, people paying rents 12 months in advance to bag their rental unit. That's just extraordinary, and that's just that's been happening for the last five years.

SPEAKER_01 3:46

Coming out of COVID, Chris, we had an apartment in Glebe, for example. Um, that could only appeal to the local market at that time, and we'll get it during COVID and we're getting $8.50 a week for it. The first January, after the COVID lockdowns were over, that property lease for $13.50 a week. Wow. It was paid 12 months in advance by uh mainland, uh mainland China students. Yeah.

SPEAKER_00 4:07

And right now rents are still surging in places like Sydney?

SPEAKER_01 4:11

Absolutely, they are. There is no signs of rents slowing at the moment, and uh one of the uh losers out of the removal of negative gearing will be tenants. That's not that's not being discussed in the commentary at the moment, but rents will surge further as investors drop out of the market.

Auction Reality Check

SPEAKER_00 4:30

Now, what about auctions? Are they worse than what we think they are? How are you scoring the auction market at the moment?

SPEAKER_01 4:37

Well, look, the auction clearance rate has been below 40% for the last seven weeks in Sydney, Chris. It's not much better in Melbourne, and Brisbane is not really uh an auction market, for example, but even the Brisbane market is slowing when you take other metrics into account. On the front page of today's FIN review, the Prime Minister Anthony Albanese is saying he's introducing these property taxes to stop young first home buyers being outbid at auctions. He's saying that on the front page of uh, you know, a national editorial, financial editorial, when the auction clearance rate hasn't cracked 40% in seven weeks. So his messaging and the reality on the ground are completely disconnected. The auction market in Sydney is dead. It is probably the worst form of sales process in this environment because the competition is just not lining up to bid on property at the moment. You can still sell, but there's no rampant buyer competition like we've seen in the past.

SPEAKER_00 5:37

I've always

Buy Before Sell Risks

SPEAKER_00 5:38

been a risk taker, Peter O'Malley, as you know, and I've always bought before selling, and I've never been burnt touch wood. But I wouldn't do that right now.

SPEAKER_01 5:49

Look, we had a couple of sales last week where um the vendors um had purchased before they'd sold, and it was a hair-raising experience for them, Chris, and you're absolutely right. There are times in the cycle where it probably is safe to purchase before you've sold, but this is not that environment. The market is too fragile. As I say, clearance rates are well down, days on market are creeping up, and if you're in bridging finance, that can become a very painful experience. Secure the sale, you know how much exactly you've got to spend out in the open market, and when you go out there, you'll probably be faced with favorable buying conditions.

SPEAKER_00 6:25

When are these favorable buying conditions going to occur again, or is this downturn at the moment going to continue for 2026?

How Long The Downturn Lasts

SPEAKER_01 6:35

Oh, I think this will go on for the rest of the year into 2027. One of the things I've never quite um understood about the property market, Chris, in my time, say compared to the share market, if there was a 10 or 15% correction in the share market this afternoon, you'd have the value uh buyers and the bargain hunters out looking uh for opportunities tomorrow in the share market. But what happens in property when the market stops falling, buyers that can buy, say this is a bad time to buy, it's gonna it's the prices are gonna fall. I'm going to the sidelines. But the greatest buys don't happen in booms, the greatest buys happen in downturns. And I think any savvy buyer should be uh looking at what is coming and what is happening as an opportunity to upgrade in a down market.

SPEAKER_00 7:20

Great

Key Takeaways And Wrap

SPEAKER_00 7:21

advice, good insight to Peter O'Malley. Thank you very much for your time. My pleasure. Thank you, Chris. Okay, real estate agent from Harris Partners and real estate analyst Peter O'Malley. There's some advice for you. Very different market. Buy first, sell later, I'll be right, is no longer applicable.