Property Investment

60% of SA Deposit-Scheme Homes Lose Value, Sparking Negative Equity Fears

By Twin·@TwinTowerCity·25 Sept 2026

This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only.

REA Group reports negative equity emerging among Adelaide buyers who used a low-deposit scheme, exposing the capital-growth assumption underpinning negative gearing at a time when suburb-level growth ranges from Nedlands' 15% to Dandenong's 2.3%.

Key Takeaways

REA Group reports negative equity emerging among Adelaide first-home buyers who used a low-deposit scheme, with taxpayers potentially exposed to the shortfall
Negative gearing's tax benefit only produces a net financial gain if capital growth eventually outweighs accumulated holding losses — an assumption now under visible strain
Suburb data shows a 12.7 percentage point growth gap between WA's Nedlands (15%) and Victoria's Dandenong (2.3%), illustrating how asset selection determines whether gearing strategies pay off

According to REA Group, the low-deposit scheme designed to get South Australian first-home buyers into the market with minimal savings has, in parts of Adelaide, wiped out those savings entirely, with reports warning taxpayers could ultimately absorb the shortfall. The timing matters: Westpac's latest housing forecast splits capital growth outcomes sharply by state, from a projected 3 per cent gain in Perth and Adelaide to a forecast double-digit 10 per cent peak-to-trough plunge in Sydney and an 8 per cent fall in Melbourne. For property investors running negative gearing strategies premised on eventual capital appreciation, Adelaide's negative equity cases are a live test of an assumption that rarely gets stress-tested in real time.

The Adelaide Deposit Scheme Warning

REA Group's reporting describes a scheme built to lower the entry barrier for first-home buyers by requiring smaller deposits than the standard 20% benchmark. In practice, buyers who entered with minimal equity buffers had little room to absorb even modest price softening. Where local values have stalled or reversed, some buyers now reportedly owe more than their properties are worth — a textbook negative equity position that low-deposit lending is designed to avoid but can accelerate into when growth assumptions fail to materialise.

The scheme's structural risk is straightforward: a buyer with a 5% deposit has almost no equity cushion. A price movement that would be a rounding error for a buyer with 20% equity becomes a solvency event for one with 5%. REA Group's reporting frames this as a taxpayer exposure question because government-backed guarantee schemes typically carry the downside risk when private lenders won't.

Why Negative Gearing Depends on the Same Assumption

Negative gearing allows investors to offset rental losses against taxable income, but the strategy only produces a net financial benefit if the asset eventually delivers capital growth that outweighs the accumulated holding losses. Strip out that growth assumption and negative gearing becomes simple loss-making, with the tax deduction merely softening — not reversing — the shortfall. This is precisely the mechanism the SA deposit scheme cases put under pressure: when growth fails to appear, both first-home buyers and geared investors are exposed to the same underlying miscalculation, just through different financial structures.

REA Group separately reported that one of the big four banks has doubled its national housing price crash forecast within three months, with one capital city facing double-digit falls. That kind of forecast revision, even if not universally shared across lenders, underlines why capital growth cannot be treated as a given input in negative gearing modelling — it needs to be stress-tested against downside scenarios, not just historical averages.

Background: What Buyers and Investors Are Actually Signing Up For

Both first-home buyers using deposit schemes and investors using negative gearing are bound by the same foundational legal document at purchase — the contract of sale, which sets out finance clauses, settlement terms, and the conditions under which a buyer is locked into a transaction regardless of subsequent price movements. Reviewing Understanding the Contract of Sale before signing is a practical step that low-deposit buyers in particular tend to skip under time pressure, yet it is where finance contingencies and exit clauses are actually negotiated. For a broader view of how current growth and rate settings interact with these mechanics, the Australian Property Market Overview provides useful context, and the historical Australian property bubble analysis offers a longer lens on how growth assumptions have failed investors in previous cycles.

Growth Divergence Across the Data: Where the Math Still Works

The state-level data shows exactly why a blanket capital-growth assumption is dangerous. Westpac's latest forecast has Perth and Adelaide both tipped for a modest 3 per cent gain, keeping a negative gearing bet on appreciation intact in those markets. Sydney and Melbourne tell a different story: Westpac is forecasting a peak-to-trough plunge of 10 per cent in Sydney and 8 per cent in Melbourne, erasing three and six years of price gains respectively.

Brisbane sits in between, with Westpac tipping growth to slow abruptly to a 2 per cent gain despite a hot start to 2026. The spread between the strongest and weakest state forecasts is the practical difference between a negative gearing strategy that compounds into a capital gain and one that simply accumulates losses with no offsetting upside.

Westpac is forecasting a 3 per cent gain in Perth and Adelaide compared to a forecast 10 per cent peak-to-trough plunge in Sydney — a swing that determines whether a negative gearing strategy built on capital appreciation actually delivers a net financial benefit or merely subsidises an ongoing loss.

State-Level Risk Concentration for Geared Investors

The state comparison is not incidental to the SA deposit scheme story — it is the same risk in a different wrapper. An investor negatively gearing a Sydney property facing a forecast 10 per cent peak-to-trough decline is making a materially different bet than one holding a Perth or Adelaide asset tipped for 3 per cent growth, yet both may be claiming equivalent tax deductions against rental losses. The deposit scheme buyers in Adelaide effectively took on leveraged exposure to local price movements with almost no equity buffer, in a market that REA Group's reporting suggests has softened faster than assumed. Geared investors holding low-growth assets face a slower-burning version of the same exposure: the tax benefit reduces the annual cash cost, but it does not manufacture the capital growth needed to make the overall position profitable.

What This Signals Near-Term

For vendors in low-growth pockets, the data argues for realistic pricing rather than assuming historical appreciation rates will resume. For buyers considering low-deposit entry points, the Adelaide cases are a direct warning to model a flat or falling price scenario before committing, not just the optimistic case the scheme was marketed on. For investors relying on negative gearing, the state-level growth spread — from a forecast 3 per cent gain in Perth and Adelaide to a forecast 10 per cent peak-to-trough plunge in Sydney — is the clearest available evidence that the tax strategy's profitability depends entirely on asset selection, not the deduction itself. Agents advising clients in either category should be treating capital growth as a variable to stress-test, not a constant to assume.

For investment property analysis alongside equities, gold and macro data, see WealthWatchPro. Property vs Other Asset Classes — WealthWatchPro →

Frequently Asked Questions

Why are some South Australian homes bought with low-deposit schemes losing value?▾

REA Group reports that low-deposit schemes in South Australia, designed for first-home buyers, left minimal equity buffers. When local property values stalled or reversed, these buyers had insufficient cushion to absorb even modest price softening. Consequently, some now owe more than their properties are worth, leading to negative equity.

What is the risk of a low-deposit home loan scheme for taxpayers?▾

The scheme's structural risk is that buyers with minimal deposits (e.g., 5%) have little equity cushion. If property values fall, government-backed guarantee schemes often absorb the downside risk that private lenders might not cover. This means taxpayers could ultimately be exposed to the shortfall from properties in negative equity.

How does negative equity in SA relate to negative gearing strategies?▾

Negative gearing relies on the assumption of future capital appreciation to make it financially beneficial. The SA negative equity cases stress-test this assumption, showing that when growth fails to materialise, both first-home buyers and investors using negative gearing are exposed to similar financial risks, just through different structures.

What is Westpac's latest housing forecast for Australian cities?▾

Westpac's latest forecast projects a 3 percent gain in Perth and Adelaide. In contrast, Sydney is forecast to experience a double-digit 10 percent peak-to-trough plunge, and Melbourne is expected to see an 8 percent fall. This highlights a sharp split in projected capital growth outcomes across different states.