Busselton first-homebuyers will no longer receive a $3000 grant for buying an existing home, after it was axed in the 2015-16 State Budget.
But first-homebuyers who build will still be able to claim $10,000, in a bid by the State Government to boost the economy.
However, South West regional councillor for the Real Estate Institute of WA Joe White said the axing would also hurt sellers.
He said the decision was confusing, considering the Government's urban infill policy.
"The bit that makes no sense at all is that they want to avoid urban sprawl and develop areas closer to town, yet the Budget is telling us create new developments and add to urban sprawl," Mr White said.
"It will have a direct impact on people selling established homes in new areas like Vasse and Provence and have an impact on people wanting to buy older, affordable home in cheaper areas.
"There should be a choice and the Government has taken that away."
First-homebuyers who buy an existing home will still be exempt from stamp duty for homes under $430,000.
Jason Cooper, from Stocker Preston, said the decision to abolish the scheme could have a negative impact on the real estate market in the South West.
"We aren't low on stock, we have a lot of homes on the market and in the next six to 12 months we will have more," he said.
"Not everyone wants to build a home and with the scheme taken out it could mean some people will opt to build instead of buy, which could have a detrimental effect on the market."
Greg Moss, from the Busselton Mortgage Gallery, agreed the real estate market would suffer as a result of the decision.
"In the last 18 months to two years, we have seen a lot more people building as a result of the increase to the First Home Owners Grant for building a house," he said.
"It will be interesting to see if it will encourage people to build or if they will still buy existing as they will get the benefit of not paying stamp duty."