Caution and long-term thinking as budget adds to softening real estate market

South Australia's real estate market is showing signs of leveling out after a post-COVID boom, with agents reporting increased caution among buyers. Rising interest rates, particularly the recent hikes in February, March, and early May, have led to fewer attendees at open inspections.

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A lot of people are taking a lot more caution when buying a property.

Adelaide real estate agent Tom Hector noted a significant increase in caution, stating, "A lot of people are taking a lot more caution when buying a property." He anticipates uncertainty in the market over the next three to four months due to continued interest rate forecasts.

Adding to buyer hesitancy are federal budget changes set to take effect next July. These include the elimination of the capital gains tax discount for investment properties and restricting negative gearing benefits to new housing only. Hector described these changes as having a "huge" negative impact on a market that has experienced substantial growth since June 2020, with prices rising 70 to 80 percent.

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So with interest rates significantly going up in the last four weeks and more forecast in the next three to four months, there is no question that there is uncertainty in the marketplace right now.

While buyers hope for lower prices, the tax changes could also reduce the number of properties entering the market. Pranav Patidar, an aspiring owner-occupier, sees the shift as an opportunity. "Rising interest rates -- I think that's a good opportunity for the people actually looking for a house for themself and maybe less motivation for the investors who where in the driving seat earlier," he said. Agents like Sam Doman suggest investors will now focus on long-term strategies.

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Buyers are really working out what their long-term strategy in investing in the property market looks like.

Home prices in Adelaide rose 12 percent over the past year, with a 1.1 percent increase between March and April. Auction clearance rates have dropped from 80 percent to below 60 percent this year. Hector predicts house prices will likely rise only at inflation figures, between 3 to 5 percent, in the coming 12 to 18 months.

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Looking at the recent changes and the new dynamics, rising interest rates, I think that's a good opportunity for the people actually looking for a house for themself and maybe less motivation for the investors who where in the driving seat earlier.