Investment property alarm: Affordable suburbs near Sydney and Melbourne where house prices are plunging

House prices in affordable suburbs are plunging in a sign investors are withdrawing from the property market as a result of Labor’s changes to negative gearing and capital gains tax concessions.

Postcodes under $1 million, within 100km of Sydney and Melbourne, have suffered some of the biggest price falls since March, when the Reserve Bank raised interest rates for the second time this year.

The price falls during the past three months have been well above the national average decline of 0.8 per cent that has taken Australia’s mid-point house price back to $1.025 million, Cotality data for June showed.

The Mornington Peninsula suburb of Dromana on the shores of Port Phillip Bay has seen its mid-point house price plunge by 6.2 per cent to $963,459.

While this suburb’s median house price is slightly above greater Melbourne’s $948,482 middle level, the quarterly decrease is steeper than the Victorian capital’s 3.3 per cent decline over three months.

Melbourne investors hoping to move to the holiday home area in retirement have shown less interest since Labor’s May Budget announced changes to negative gearing, Belle Property Rosebud sales consultant Jared Tipping told The Nightly.

“It’s reduced demand, definitely. In the lead-up to the Budget, once they started talking about changes,” he said.

“The townhouse, units and the higher-end properties are more bought by people that are going to transition down to the peninsula in retirement age.

“The general buyer’s 45 to 60, probably going to use it as a weekender for four to five years, negatively gear it and then make their move down when they sell the property in the city.”

Melbourne’s outer east has also seen bigger than average falls, with Bayswater values plunging 5.6 per cent to $874,426.

Ferntree Gully house prices have fallen by 4.5 per cent since March to $897,544 and nearby Boronia saw its median house price fall by 4.4 per cent to $837,230.

The NSW Central Coast, an hour’s drive north of Sydney, also saw some big price falls.

They weren’t as dramatic as greater Sydney’s 3.8 per cent decline over three months but these postcodes, a commuting distance from Australia’s most populated city, have median house prices under $1m.

This is much cheaper than greater Sydney’s $1.556m mid-point.

North Gosford’s median house price fell 3.4 per cent to $984,141.

On the northern side of the Central Coast, north of Wyong, Lake Munmorah house prices dipped 3.2 per cent to $869,880.

A short drive away, Chain Valley Bay house prices fell 3.1 per cent to $854,551.

While regional markets have still be growing during the past three months, some towns clearly bucked the trend.

Shepparton North’s median house price in Victoria’s north has plummeted 7.5 per cent to $699,922 over the quarter.

Ballina, on the NSW far north coast, saw its mid-point house price fall 1.8 per cent to $985,615, making it less than half the price of nearby Byron Bay’s $2.4m median.

House prices have still been growing in Brisbane, Adelaide, Perth and Hobart during the past three months, but growth has been flat in some median-priced suburbs.

Upmarket postcodes in Sydney and Melbourne have suffered more dramatic price falls, with the Reserve Bank of Australia’s rate hikes in February, March and May diminishing the borrowing capacity of prospective buyers, with the cash rate back at 4.35 per cent.

But cheaper postcodes are losing investors, with new laws coming into effect on July 1, 2027, restricting negative gearing for investors making a rental loss to brand new homes.

Only existing homes exchanged before Budget night on May 12 will keep the tax breaks.

This had restricted what banks can lend to prospective investors, buying an established home, leading to house price falls in those affordable suburbs where landlords are more active, Michael Yardney, a director of buyers’ agent Metropole Property Strategists said.

“At the moment, the lenders are factoring in that in 12 months’ time, the borrower won’t have the same capacity to repay,” he told The Nightly.

“The average investor buying an established property can borrow more likely 15 to 20 per cent less at the moment.”

The 50 per cent capital gains tax discount is also being replaced with a new minimum 30 per cent tax on inflation-adjusted gains.