The debate over Capital Gains Tax (CGT) is heating up, but according to property data firm Cotality, it might not be as lucrative as some think. In the last 4-5 years, the market has been relatively stable, with national median property values showing little change and still 17.3% below their peak. From October 2023 to October 2025, the median price only increased by a modest $9,550, from $802,112 to $811,662. This data raises questions about the potential revenue a CGT could generate. Labour's proposed 28% CGT on residential and commercial properties from 2027 is a significant move, but Cotality's chief property economist, Kelvin Davidson, highlights some crucial points.
The timing of the proposal is intriguing. While the market is showing signs of life, it's still below normal levels. Affordability has improved, and investor participation is on the rise. This context makes the CGT debate even more interesting. Davidson suggests that investors might hold properties longer to avoid the tax, but this strategy has its limits. He explains that a CGT wouldn't prevent price rises, as evidenced by other countries with similar taxes. In fact, to collect any meaningful revenue, property values would need to increase, which hasn't been the case in recent years, with values only 10% higher than in October 2020.
The CGT could potentially reduce the expected returns on property investment, leading to fewer investors. However, it might also create opportunities for those who were previously renting to buy. The market is currently in a state of balance, with sales volumes up 6% in October, and first-home buyers accounting for 29% of purchases. Investors make up 25% of transactions, and the predictability of current conditions is reassuring for buyers. As affordability improves and employment conditions strengthen, there's a sense of cautious optimism.
Davidson predicts that prices will rise next year, driven by falling mortgage rates and a wider range of improving economic indicators. The market is in a delicate equilibrium, and the final months of the year will be crucial in determining whether the steady rise in sales can sustain the usual seasonal increase in new listings. Despite the potential impact of the CGT, the market's current stability and the predicted rise in prices suggest that the tax might not be as effective as some anticipate.
