Prime Minister Anthony Albanese’s landmark property tax reforms have been forecast to blow a circa $800 million hole in NSW government coffers over the next six months.
New modelling has revealed the reforms are expected to drive down both home prices and property transaction volumes, leading to a heavy loss of state stamp duty revenue.
The NSW government was projected to collect $5 billion in tax revenue over the remaining months of the year, $780 million less than over the same period in 2025.
A total $5.78 billion was collected over the same six months last year, according to the modelling by analytics group FoundIt.
Revenue has already been declining rapidly since the May announcement of budget reforms, including restrictions on negative gearing to new builds and capital gains tax changes.
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Auction clearance rates have been at decade lows since May.
Monthly collections in March and April were up on the previous year but growth in revenue stifled in May before falling 5 per cent below last year levels in June, according to FoundIt.
FoundIt’s modelling was based on analysis of every residential property transfer accessed by Revenue NSW, which was matched against 1.49 million Valuer General sales records.
The group’s head of research Kent Lardner said the modelling indicated federal government policies could drive a large drop in transactions, and in turn, state government revenue.
Stamp duty is charged as a percentage of the purchase price and is one of the government’s main sources of revenue.
The key drain on transaction volumes was an expected contraction in investor activity due to the restrictions on negative gearing.
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The Albanese government’s tax reforms are expected to drive down property transactions and, in turn, NSW stamp duty revenue. Picture: Asanka Ratnayake
FoundIt analysis of lending trends showed 86 per cent of NSW investor loans over the past year were for established homes, the exact segment that loses negative gearing under the budget changes.
“Investors like good investments. Years of sales trends show they do not like new builds and are unlikely to purchase more new builds,” Mr Lardner said.
“The evidence suggests they are likely to sit on their hands for the next two years and the lower transaction volumes will drive a fall in stamp duty revenue.
“NSW is the most vulnerable to the (federal) changes because it has the highest number of investor transactions.”
FoundIt’s modelling aligned loosely with NSW Treasury’s own estimates. Treasury estimated a month ago that stamp duty revenue would total $12.5 billion in 2026/27, down from the $14.2 billion collected in the 2025/26 financial year.
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Falling real estate transactions have two primary drivers: recent budget reforms announced by Jim Chalmers (left) and interest rate hikes, announced by RBA governor Michele Bullock.
The total expected drop in revenue over the next four years was forecast to be about $5 billion.
Mr Lardner said these projections may have “short-changed” the true loss of revenue by underestimating just how much of an impact a fall in investor activity would have in the 2027 calendar year.
“We don’t know yet just how much of an impact there will be, but early signs are there could be a lot more investors retreating from the market than government data suggests,” he said.
A spokesman for NSW government said: “Treasury watches the property market closely. Any forecast update will be delivered at the half-yearly review”.
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Source: FoundIt
SQM Research director Louis Christopher – commenting on a recent, notable drop in new listings across Sydney – said the current market downturn would likely last for the next two years.
Mr Christopher said early signs were there would be a continued drop off in homeowners listing their properties for sale over the coming months, which would result in fewer transactions. The catalyst for this change was reduced seller confidence because of the tax reforms.
“There is evidence of vendors leaving the market,” Mr Christopher said, adding that the current market slump appeared entrenched.
“There is no sweetener on the horizon. No interest rate cut, no likely turnaround from the government on its (negative gearing and capital gains tax) policies.”
HSBC warned on Monday that national home prices could fall by 8 per cent over the next year.
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Source: FoundIt
HSBC chief economist Paul Bloxham said falling home values in the month after Jim Chalmers’ May budget were “just the beginning” of a downward path for property prices across the country.
First-home buyers were unlikely to pick up the lost demand from investors leaving the market, Mr Bloxham said.
“As we see it, first home buyers and other owner-occupiers are unlikely to want to try to ‘catch a falling knife’,” he said.
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