What the May budget really did to the Perth market

The Perth property market did not drift into its current shape. It was built by policy, twice. First by the settings that supercharged it, then by the federal budget of 12 May 2026 that switched several of them off. If you own an apartment, villa or townhouse, or you are thinking about buying one, it is worth understanding exactly what changed, because the headlines have not told the story well.

The market that policy built

From 1 October 2025, the federal government expanded the Home Guarantee Scheme. The property price cap for Perth was lifted to $850,000, income tests were removed entirely, and the cap on places was abolished. Any eligible first home buyer could buy with a 5 per cent deposit, no lenders mortgage insurance, and the government standing behind the loan.

The effect was immediate and powerful. Everything under $850,000, which in Perth means most apartments, villas, townhouses and a large share of houses, was suddenly within reach of buyers who had spent years saving toward a 20 per cent deposit. Demand under the cap surged, and with it a sense of urgency: buy now, before the next buyer does.

Underneath that sat the investor settings that had shaped the market for decades. Since 1999, half of any capital gain on a property held more than a year was simply tax free, the familiar 50 per cent capital gains tax discount. And building depreciation, the annual capital works deduction on construction costs, could be set against an investor’s salary and other income, year after year, alongside the other costs of negative gearing. Together, these two settings meant an investment property sheltered income while it was held and sheltered half the gain when it was sold.

What the budget changed

The 2026-27 federal budget, handed down on 12 May 2026, rewrote both settings, with effect from 1 July 2027.

Negative gearing is being limited to new builds. For an established property bought after 7.30pm on budget night, rental losses will no longer be deductible against wages and other income. They can only be set against income or gains from residential property, or carried forward.

The 50 per cent capital gains tax discount is being replaced for gains that accrue after 1 July 2027, with cost base indexation and a minimum 30 per cent tax rate on real gains in its place.

New property was deliberately spared. Buyers of new dwellings keep negative gearing, keep depreciation in its most valuable form (a new building has decades of capital works deductions ahead of it), and even keep a choice at sale between the old 50 per cent discount and the new regime. The government was explicit that this is meant to steer investment into new housing.

Existing owners were grandfathered. A property held before budget night keeps its negative gearing treatment, and gains accrued up to 1 July 2027 keep the 50 per cent discount whenever the property is eventually sold.

What actually happened next

From where we sit, selling apartments in Perth’s inner-city corridor every week, the change was felt within days, and it worked through the market in three ways.

First, the urgency went out of buying. The scramble that the Home Guarantee expansion created had been driven partly by fear of being outbid by an investor. With investors stepping back, buyers learnt they could take their time, and a market priced for urgency had to adjust. At the top of the apartment market we have watched around 20 per cent come off between the deals written before the budget and the deals being written now.

Second, investors stopped buying established property almost entirely. Why would they? An established apartment bought today carries no negative gearing against wages from 1 July 2027, faces the new capital gains regime, and, being older stock, offers little depreciation anyway. A new build next door keeps all three advantages. The incentive to choose new over established is now overwhelming, and established property has lost its investor bid.

Third, existing investors split. Some moved quickly to sell into what was left of the pre-budget market. Many more are choosing to hold, and the grandfathering explains why: they are sitting on years of accrued gains that keep the 50 per cent discount, their older properties were not generating meaningful depreciation anyway, and if they sell they cannot re-enter the established market on the old terms. Selling crystallises their position; holding preserves it.

Why the headlines said prices were still rising

Through late May and June, plenty of reports had Perth prices still climbing. Most of them were wrong about what they were measuring. Price data is largely built on settlements, and a settlement in late May or June records a sale that was agreed weeks or months earlier, before budget night. Reports were presenting pre-budget sales as post-budget evidence. The contracts being written after 12 May told a different story, and that story only reaches the official numbers now, as those sales settle.

Where it goes from here

Markets adjust. With fewer investors buying and some selling, rental stock will tighten. A tight rental market pushes rents up, and rising rents lift yields. At some point, yield does what tax incentives used to do and draws investors back, even to established property. Nobody can tell you the date, but the mechanism is as old as the market itself.

In the meantime, the practical picture is this. If you are selling a property under $850,000, your buyer is now almost certainly an owner-occupier, very often a first home buyer using the 5 per cent deposit scheme, and pricing to that buyer, accurately and from the first week, matters more than it has in years. If you are buying, you have time, choice and negotiating room that did not exist before May. And if you are an investor weighing up whether to hold or sell, the grandfathering rules make that a genuine decision with real numbers on each side.

We are having these conversations every day, with real sales evidence from both sides of budget night. If you want to know what the change means for your property specifically, ask us for an appraisal and we will show you the sales evidence for your building.

If you are weighing up what the new rules could mean for a sale of your own, our capital gains tax calculator estimates the tax under the current rules and the rules from 1 July 2027, including sales that straddle the changeover.

This article is general information about announced policy and market conditions, not tax, legal or financial advice. Tax outcomes depend on your circumstances, and the budget measures are subject to the legislation as passed. Speak to your accountant or financial adviser before acting.

KPR is not licensed to give tax advice and nothing in this article is tax advice. How the budget changes land depends entirely on your own circumstances, so speak to a registered tax agent. We refer clients to Evolve Accountants and Business Advisors in Subiaco.

By James Yeoman, Director of KPR Perth Pty Ltd T/A Key Performance Real Estate