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The number of loans to investors fell by 9 per cent over the quarter, compared with a 3 per cent decline in owner-occupier lending, according to the PropTrack–Terri Scheer Investor Report 2026.
Investor loans peaked at more than 60,000 in the final quarter of 2025, but demand has since softened as interest rate rises and changes to negative gearing and capital gains tax settings reshape the investment market.
The pullback comes as national home prices have fallen for six consecutive months since peaking in March, dropping 3.3 per cent from their high. Prices in Sydney and Melbourne have fallen by around 5.5 per cent from peak, while PropTrack expects prices to remain under pressure through the end of 2026 and not return to growth until 2027.
Indeed, immediately after the budget, Westpac chief economist Luci Ellis predicted that new investor activity could fall by as much as 34 per cent in the near term.
Nonetheless, the report also found that around 93 per cent of investment properties sold so far in 2026 have sold for more than they were bought for, and although it remains below 2025 levels, investor loan demand has exhibited a partial recovery.
Investors turn to new-builds and higher-yielding properties
While overall investor lending declined in the June quarter, loans for buying or building new homes increased by 24 per cent.
Not coincidentally, the federal budget, which was announced in May 2026, exempted new homes from the changes to negative gearing.
The report found that while the subdued investor demand was an expectation, if not a deliberate effort for the federal budget, the long-term effect it expected to be “fairly modest”.
“Budget estimates are for an average additional 7,500 first home buyers per year – implicitly substituting for investors,” the report said.
“This is relatively small in the context of the 150–200,000 annual purchases.”
The report also found early evidence that investor inquiries were shifting towards properties offering higher rental yields, rather than those where the investment case relies more heavily on capital growth.
According to ATO TaxStats, cited in PropTrack’s report, more than half of individuals report a net loss on their investment property.
However, PropTrack found the share of investor inquiries for properties offering rental yields of 4–5 per cent increased from around 34 per cent in the two months before the federal budget to almost 39 per cent in the two months after.
Meanwhile, the share of inquiries for properties yielding 3–4 per cent fell from around 42 per cent to 38 per cent, while interest in properties offering yields of 5 per cent or more also increased.
REA senior economist Angus Moore said that the shift was consistent with investors moving away from negatively geared properties towards investments more likely to generate positive cash flow.
“Over the long term, the budget changes may lead to a shift in investor demand, as investors look towards properties with higher yields,” he said.
“Low-yielding and loss-making rental properties are likely to become less attractive to investors, as negative gearing will be no longer available for existing residential properties.
“Although, rental market conditions remain tight and rent prices have continued to rise, as home prices have softened, which is likely to support investor activity over the next year.”
Investor resales remain profitable, but further price falls expected before 2027 recovery
In the three months to the end of July 2026, 91 per cent of investor sales were above their original purchase price, down from 93 per cent earlier in the year.
This varied between capital cities. Melbourne recorded the lowest share of profitable investor resales, at 85 per cent, compared with 90 per cent in Sydney and 98 per cent in Perth. Brisbane and Adelaide each recorded 99 per cent.
Median hold periods across the capital cities averaged at 9.6 years, with Perth being the highest at 10.6 years and Hobart being the lowest at eight years.
Median profits on resales were strongest in Brisbane ($520,000) and lowest in Melbourne ($270,000), while the national average was $345,000.
The report, however, also noted continued pressure on the housing market, with home prices having fallen for six consecutive months after peaking in March 2026.
Prices were down 3.3 per cent nationally from that peak, according to PropTrack, with the report expecting the decline to continue through the rest of the year.
The report also found that home prices were unlikely to return to growth until 2027, leaving investors to weigh rental returns against a softer market for capital growth.
Similarly, National Australia Bank (NAB) adjusted its housing forecast downwards last week, with prices now expected to fall around 11 per cent from peak to trough before finding a floor in the second quarter of 2027.
“While Australia’s property market is evolving, this report shows there are still compelling opportunities for investors who focus on strong fundamentals,” Terri Scheer executive manager Carolyn Parrella said.
“Tight rental markets, improving rental yields and continued tenant demand highlight the enduring role residential property can play as a long-term investment.
“While Australia’s property market is evolving, this report shows there are still compelling opportunities for investors who focus on strong fundamentals.
“Tight rental markets, improving rental yields and continued tenant demand highlight the enduring role residential property can play as a long-term investment.”
[Related: 5% Deposit Scheme hits a milestone, but buyers hit a wall]
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