The budget's tax whack on property investors will accelerate a housing slowdown caused by interest rate hikes, potentially causing the biggest downturn in more than 40 years.
Home price growth was already slowing nationwide, with outright falls in Sydney and Melbourne, following three straight Reserve Bank rate rises.
But the changes to negative gearing and capital gains tax concessions in the federal budget could cause housing prices to fall by up to 10 per cent, Morgan Stanley analysts said in a research note on Thursday.
By lowering expected returns and constraining borrowing capacity for prospective landlords, the budget fundamentally altered the mathematics for new investors in established housing, who make up a third of marginal demand, they wrote.
Even though the fall in investor demand will be partly offset by growth in owner-occupier activity, Morgan Stanley sees a five to 10 per cent drop in national prices as likely, "taking into account the soft starting point for housing with RBA rate hikes".
