Market mood
March delivered a perfect storm of unsettling headlines — fuel and commodity price spikes, shortages, and interest rate speculation, all converging with a May Federal budget that has property squarely in its sights.
Unlike previous episodes of market anxiety, this one is lingering — though not affecting all segments uniformly. What I'm observing is a buyer who is cautious and considered. Decision timelines are longer, due diligence is more thorough, and competition at auction is thinner across all segments.
For buyers with clarity of purpose, this is not a bad environment. By my own calculation there has been a temporary 5–7% price softness across select segments over the past month — and some of the best buying conditions in 18 months for those who remained active. The first home buyer category has stayed competitive throughout, and one-bedroom apartment stock has remained particularly resilient.
The underlying fundamentals of Sydney property haven't changed. Demand continues to outpace supply, and the forces generating headlines are compounding that supply problem rather than resolving it. So what's likely to happen in the near term?
The global picture — Oxford Economics
The Middle East conflict is not a distant variable. For the Australian economy — and for construction costs specifically — it has direct and traceable consequences.
Oxford Economics has modelled two scenarios depending on how long the conflict, and the resulting Strait of Hormuz disruption, continues.
Base case
Conflict resolves by ~end of April
Traffic through the Strait recovers to around 50% in May–June, returning to full capacity over the following six months. Inflationary pressure elevated but manageable.
Prolonged war scenario
Recession risk becomes real
Oil above $150/barrel for four months. Global inflation near 7.7% — close to the 2022 peak. Australian GDP contracts 0.3% in Q2, a further 0.8% in Q3. The sharpest quarterly falls since the early 1990s, outside the pandemic.
Oxford Economics — April 2026
Transport, manufacturing, mining, and agriculture are identified as the most exposed sectors. States with export-oriented, commodity-focused economies face the worst outcomes; diversified, densely populated economies — like NSW — fare relatively better.
What this means for construction: material costs — PVC, asphalt, steel reinforcement — are already up 30–50% as a direct consequence of oil price rises and shipping disruption, with paint and cement up 10%. If the conflict extends, the cost environment for new supply becomes significantly worse, reinforcing the case for well-located existing stock.
May budget — what it actually means for investors
Two anticipated policy changes are making headlines. One mostly symbolic, one worth modelling carefully.
Proposed changes at a glance
The negative gearing cap sounds alarming as a headline. In practice, around 96% of Australian property investors hold two or fewer properties — meaning the vast majority are largely unaffected. The CGT discount reduction to 33% is more broadly felt and warrants a conversation around sell-timing strategy and long-term hold assumptions.
Saul Eslake — economist
Eslake, one of Australia's leading independent economists and a longstanding advocate for housing tax reform, argues the real driver of inflated property prices isn't negative gearing itself — it's the 1999 decision to raise the CGT discount to 50% that "turbo charged" the problem. His prescription: wind the discount back toward pre-1999 levels, taxing gains at the personal marginal rate. He pushes back firmly on claims that reform will send rents soaring, characterising such predictions as scaremongering unsupported by historical evidence — including when negative gearing was briefly quarantined in the 1980s.
Net reading: the policy changes are real, but their practical impact on most investor clients is narrower than the commentary suggests. The more productive conversation is around how sell-timing strategy shifts when the CGT discount compresses.
Supply & construction cost reality
30–50%
Rise in PVC, asphalt & steel reinforcement
10%
Paint & cement cost increases
$5–6k
Per sqm renovation cost in Sydney (was $3–4k in 2023)
Renovation economics continue to reprice. Done properties are commanding premiums, and buyer appetite for renovation projects is cooling. This is what we're experiencing on the ground — not a headline. Factor it into any property brief for clients.
Where demand is moving
First home buyers
The busiest buyer category in the market. Urgency is high and competition remains real despite broader caution.
Single-level demand rising
Downsizers and young families converging on single-level homes and accessible apartments — a rare double tailwind.
Multi-generational living
Granny flats, backyard studios, self-contained over-garage, and dual occupancy are now explicit search criteria rather than a bonus.
EV-ready infrastructure
Aussie EV sales up 46% in March. Strata reports show common area charger installations accelerating. With NATHERS ratings near-compulsory, energy efficiency is a purchase driver, not a nice-to-have.
Reasons to be optimistic
Markets have absorbed shocks before. The buyers who act with conviction during uncertain periods are consistently the ones who look back with satisfaction.
01
Crisis fatigue is real — and it works in buyers' favour
We are seeing early signs of the market normalising around uncertainty. When buyers stop waiting for headlines to improve and start focusing on underlying value, the window created by caution begins to close. Active buyers right now are competing with fewer people than they were even two months ago.
02
Uncertainty is the new operating environment — not a reason to pause
Geopolitical disruption, policy change, and cost inflation are not going away. The buyers who thrive are those who make quality decisions within this environment rather than waiting for it to resolve. Sydney's structural supply shortage isn't on hold — it's deteriorating further.
03
The fundamentals are sound and we see clear pockets of value
Our research identifies specific house and apartment markets where we expect continued growth despite the headlines — particularly properties appealing to first home buyers, rightsizers, and multi-generational purchasers.
Where we see growth over the next four years
Our research has identified specific house and apartment markets positioned for above-market performance through 2029. If any of your clients would benefit from a detailed suburb-level report for one of these growth areas, just let us know the purchase price range and we'll send one over at no charge.
