Market Update – Changes to SMSFs
The last few weeks have been a rollercoaster for Sydney property buyers.
First came the Federal Budget announcements affecting negative gearing and capital gains tax. Then weeks of uncertainty as investors, lenders and buyers tried to assess the implications. This week saw another significant change, with SMSF borrowing for residential property effectively coming to an end.
If you were relying solely on the headlines, you could be forgiven for thinking that buyers have disappeared altogether. Yet that is not what we are seeing on the ground.
Across Sydney’s Inner West, Eastern Suburbs and Lower North Shore, properties are still changing hands every day. The difference is that the buyer pool has changed.
Fewer buyers are active than twelve months ago. Those who remain are more selective, more patient and, in many cases, in a stronger position to negotiate.
The real question is not whether people are still buying property in 2026. It is who is still buying and why?
The 2026 market: weaker sentiment, but ongoing activity
Australia’s housing market in 2026 is facing multiple headwinds, including higher interest rates, weaker consumer confidence and recent housing tax changes. Major bank economists now expect national dwelling prices to be broadly flat over 2026, down from earlier forecasts of positive growth, as these factors weigh on demand. In Sydney, several forecasters anticipate small falls in dwelling values this year, with Domain now revising their outlook to a 7% decline over the next financial year led by softer conditions in higher‑priced suburbs.
Auction metrics confirm this cooling in momentum. Clearance rates across Sydney have collapsed with SQM Research recording a figure of just 31.92% for the week ending 21 June, 2026 which is the lowest since the early days of the COVID pandemic.
Lending data and bank forecasts suggest housing credit growth is slowing, particularly among investors. Commonwealth Bank expects new investor lending in 2026 to fall to around half of late-2025 volumes, while owner-occupier lending is expected to soften more moderately. Westpac expects investor activity to plunge 34%, housing turnover to fall 20%, and capital city dwelling prices to effectively stall in 2026. Despite this constrained backdrop, properties are still changing hands. Price growth has slowed and, in some submarkets, already turned negative, but transaction volumes have not collapsed. The question for thoughtful property buyers is less “why have some buyers paused?” and more “who is still buying – and why?”
Upsizers: Taking advantage of price differentials
Ironically, some of the biggest beneficiaries of a softer market are existing homeowners looking to upgrade. We are seeing this particularly in established family neighbourhoods of the Inner West, the Eastern Suburbs and the Lower North Shore, where household incomes and equity levels support trade‑up moves.
The core dynamic is simple: when both a seller’s current home and their desired upgrade property have fallen in value, the gap between the two can narrow meaningfully. For example, consider a homeowner whose property was worth $2,000,000 at the peak and is now valued at 1,800,000. On paper, they have “lost” 200,000,ie 10%. However, if the home they wish to buy has dropped 10% from $4,000,000 to $3,600,000, the effective upgrade gap has reduced from $2,000,000 to $1,800,000. Their current home has declined by $200,000, but the target property has fallen by $400,000, leaving them $200,000 better off in relative terms.
In practical terms, upsizers in 2026 benefit from:
- Softer competition at higher price points, especially in prestige and near‑prestige segments that are more sensitive to interest rate changes.
- Increased willingness from vendors to negotiate on price, settlement terms and inclusions.
- More balanced auction conditions, with fewer emotionally driven bidding wars and a higher incidence of properties passing in and selling subsequently by negotiation.
- In some cases price expectations being lowered by as much as 5% – 10%.
For many upgrading households, the ability to move into a long‑term home at a reduced differential without the intensity of previous boom‑time competition represents one of the most under‑recognised opportunities in the current market.
Home buyers: Better conditions, not booming confidence
Owner‑occupier home buyers who remain active in 2026 are not buying because they are optimistic about the broader economy. Consumer confidence readings in the 70s – 80s on major indices underscore that macroeconomic sentiment is still clearly negative. Rather, they are proceeding because buying conditions have improved relative to the frenetic environment of recent years.
Across key Sydney regions, we are observing four notable shifts in conditions that matter deeply to home buyers:
- Less competition: With investor lending volumes expected to fall sharply and some discretionary buyers choosing to delay decisions, many owner‑occupiers are encountering fewer active bidders per property.
- More negotiation opportunities: Softer auction clearance rates and modest price declines are translating into more scope for conditional offers, negotiated price reductions and flexible settlement arrangements.
- Longer due diligence periods: In contrast to the compressed timelines of 2021–2025, buyers now have greater capacity to arrange building and pest inspections, review strata records and obtain unconditional loan approval without fear of immediate competition.
- Fewer emotional bidding wars: Reduced urgency and weaker sentiment have tempered the bidding intensity that previously led to frequent above‑reserve outcomes.
For many families, particularly those purchasing for long‑term occupancy rather than short‑term gains, the ability to make a measured decision is proving just as valuable as any headline price discount. The psychological benefit of being able to walk away from a property, knowing that another suitable option is likely to emerge, should not be underestimated in a city where undersupply remains a structural issue.
First home buyers: Active, but more cautious
First-home buyer activity has eased from the surge seen in late 2025 but remains an important source of housing demand. ABS data show the number of new owner-occupier first-home buyer loan commitments fell 4.3% in the March quarter 2026, while loan values declined 6.7%. However, this followed a strong 6.8% rise in the December quarter 2025, supported by expanded government first-home buyer programs, and first-home buyer loan numbers remain 5.0% higher than a year earlier. The first home buyers we see continuing to transact in 2026 share several characteristics:
- Focus on quality: Buyers are increasingly looking for blue chip apartments with good strata history in amenity rich locations.
- Focus on long‑term holding: With short‑term capital growth projections more subdued, first home buyers are viewing their purchases as 7–10 year holdings rather than speculative steps.
Crucially, first home buyers often face less competition from investors than during previous upswings. With new investor lending expected to be roughly half of late‑2025 levels and policy changes reducing the appeal of highly leveraged strategies, investors are less visible at entry‑level price points. This creates openings that did not exist when investor demand was at its peak and auction clearance rates were consistently in the 70–80 per cent range.
Investors: More selective, but still present
The recent Federal Budget measures and proposed tax changes have clearly dampened investor sentiment but despite the forecasts outlined above, investors have not disappeared.
The investors still buying in Sydney’s established suburbs are typically concentrating on fundamentals rather than tax settings:
- Quality locations with enduring demand, including proximity to employment centres, transport corridors and high‑amenity retail and school precincts.
- Scarcity, focusing on dwellings with characteristics that are difficult to replicate, such as period homes on larger blocks or boutique strata stock with strong owner‑occupier appeal.
- Strong owner‑occupier appeal to underpin rental demand and future resale performance, even if investor participation remains subdued.
- Long‑term capital growth potential in markets where population growth, limited new supply and infrastructure investment support sustained price appreciation beyond the current cycle.
These investors are now more inclined to walk away from marginal assets that rely primarily on tax benefits to make sense. Instead, they are prepared to accept a period of modest or flat performance in exchange for owning assets that can compound over a decade or more. For many, investment strategies are also evolving to consider commercial property opportunities and diversified holdings that complement, rather than replace, residential exposure.
The investor buying in 2026 looks very different to the investor buying in 2025. The speculative investor is retreating. The strategic investor remains.
Why these buyers matter – and how buyers’ agents help
In a market characterised by softer sentiment, uneven price movements across suburbs and evolving regulatory settings, the role of specialist buyers’ agents becomes more important, not less. We are able to:
- Interpret detailed local data on auction outcomes, days on market and vendor discounting in the Inner West, Eastern Suburbs and Lower North Shore.
- Identify genuine opportunities for upsizers where price differentials have shifted in their favour.
- Guide home buyers and first home buyers through slower, more negotiable campaigns, ensuring that improved conditions translate into stronger outcomes rather than simply delayed decisions.
- Assist investors to filter opportunities based on scarcity, rental demand and long‑term growth prospects, rather than short‑term tax settings alone.
Every property cycle creates winners and losers.
The buyers who tend to perform best are rarely those trying to predict the next three months. They are the buyers who recognise when market conditions have shifted in their favour and have the confidence to act.
Today, upsizers are benefiting from improved price differentials. Home buyers are enjoying greater negotiating power. First-home buyers are facing less investor competition. Long-term investors are finding opportunities that would have been difficult to secure during the boom years.
Sydney’s property market has not stopped. It has simply become more selective.
For buyers prepared to look beyond the headlines and focus on long-term objectives, the second half of 2026 may prove to be one of the most favourable buying environments we have seen in years.
