It has now been 75 days since Jim’s budget blunder, and the changes to the property market have been significant.
At first, it was like the whole market was dumbstruck, paralysed, and then slowly, it got back up off the floor and started moving again. Yes, it’s different, but we have not fallen off a cliff.
One of the most notable new trends since the budget is the behaviour of the housing investor class.
Pre-budget, residential investors were plaguing our affordable housing market, mostly purchasing through a huge number of buyer’s advocates, and mostly from out-of-state buyers.
Almost immediately, these buyer’s advocates withdrew. The appetite for residential investment remains low, with some continued demand below the $900,000 mark, but very little above.
The residential rental market has bounced; it’s as hard as ever to find a property if you are a tenant.
Properties are lasting minutes, not even days, when they fall vacant, and this pressure is going to last, with migration from Melbourne to the Geelong region starting to pick up.
This migration factor gives me confidence that the residential sale market will also build momentum again, eventually.
And we have Melbourne to thank, as 90 per cent of our migration to Geelong is coming from Melbourne.
In the last 12 months, about 14,300 people have moved to the Geelong region, with 14,200 coming from Melbourne!
Taking into consideration those that left, the net population increase is around 3,600.
Over the same 12-month period, the Victorian Building Authority estimates between 2,200 and 2,500 residential occupancy permits have been issued. That’s actual new completions.
How does 3,600 go into 2,500? It doesn’t! And the permit number is well down on 2024–25 and earlier years.
Supply will stay constrained for some time, and the issue of the supply shortage was never even addressed in Jim’s budget blunder!
There has been a seismic shift in the commercial property sector also. It is the inverse of the residential market in some ways.
In the period I am calling “2026 pre-Jim”, the commercial sector was led by owner-occupiers. Small businesses looked to buy their own premises or rent new ones.
In this period, owner-occupiers could accept much tighter capitalisation rates, sometimes 1–2 per cent tighter than investors, and rents were growing.
But “2026 post-Jim” owner-occupiers (small businesses) have disappeared from the market, and now investors are leading the market, and vacancy rates are skyrocketing.
Many of the tax changes in the budget had no impact on commercial property as an investment tool, but they did have a big impact on the structure of small businesses.
The conversation has now changed: small business owners are asking themselves why they would try to invest in their own building or expand their business when it will be caught up in a capital gains scenario via trusts.
This has resulted in many vacant buildings languishing on the commercial rental market. Without tenants, these same properties won’t appeal to investors, and they will not find buyers.
But properties with good tenants are seeing demand. It’s a significant shift in the buyer profile.
It wasn’t too long ago that agents were advising owners to offer properties vacant to achieve higher sale prices. Now they are being told that, without a tenant, it may not be able to be sold at all!
I expect this situation to last some time. As a result, we will start to see some pressure on commercial rentals to come down, along with an increase in market incentives being offered to attract tenants.
At the same time, vacant properties will be very hard to fill or sell, and this will have an impact on productivity long term.
Commercial landlords will need to be awake to this change, or see their properties languish without tenants for long periods.
All in all, what Jim’s budget blunder has proved is that supply and demand will forever control the price of property. Taking a tax axe to one sector will only allow other sectors to thrive.
This budget has rewarded commercial investors, while punishing small business owners. It has rewarded long-term residential investors with higher rentals yet punished young families who are renting and cannot get into the property market.
Over the next few months, as the weather warms, there will be more changes, and I expect to see far more activity as confidence grows again on the back of low supply.
GARETH KENT
Director, Preston Rowe Paterson