The Federal Budget has delivered the most significant change to Australian property tax in a generation. The political message is to cool investor demand for established homes and push capital toward new housing supply but the implications for investors and owner-occupiers aren’t as straightforward.
Negative gearing. Investors will no longer be able to immediately deduct property losses against personal income on newly acquired established properties, instead losses carry forward to be applied either when the property turns cashflow positive or against a future capital gain on sale. The benefit still exists, it’s the cashflow timing that changes.
Exceptions apply to commercial property, and new build apartments, and houses. All existing investment properties purchased pre budget are grandfathered and unchanged.
Capital gains tax. The 50 per cent CGT discount is replaced with cost-base indexation, meaning investors will be taxed on inflation-adjusted gains rather than receiving a flat half-discount. A 30 per cent minimum tax floor applies to net capital gains. Gains accrued before 1 July 2027 retain the current 50 per cent treatment. Investors in new residential builds can choose between the old discount and the new indexation method.
Discretionary trusts. A 30 per cent minimum tax will apply to discretionary trust distributions from 1 July 2028, with rollover relief available for three years.
Borrowing capacity. Most of the commentary has focused on tax. The bigger immediate impact is on what investors can actually borrow. When lending assessments no longer factor in negative gearing benefits borrowing capacity falls by around 30 per cent. This will affect the dynamic of competition for existing stock and improve conditions for owner occ buyers.
What Might Happen
Demand supply mismatch. New builds tend to be concentrated in outer growth corridors, high density precincts and masterplanned communities. Renter and (first) homebuyer demand is strongest in established middle-ring suburbs near schools, hospitals, universities, transport and major employers.
Return of the property spruiker. Project marketers are about to have a(nother) day in the sun. It’s feasible many new properties won’t be up to scratch for build quality, location and floor plan especially given labour and construction costs. A property is only “new” once, the next buyer does not get the same tax treatment
Lower transaction volumes. Grandfathered investors may hold longer, fewer investors will buy established stock. A thinner, slower market does not necessarily mean better buying conditions.
Rentvesting becomes harder for younger buyers. For the many Australians who cannot afford to buy where they want to live, rentvesting has been one of the few realistic pathways into the market — rent where you need to be, own where you can afford. Options will diminish.
Sophisticated investors restructure. Higher-net-worth investors will move toward company structures and other arrangements that produce better tax outcomes. The sophistication gap between top-end and everyday investors could widen.
Increasing Rents? One argument is that fewer investors means less rental stock and therefore higher rents. There is a counter-argument that every rental that becomes owner-occupied removes one household from the rental queue, and it nets out. Treasury modelling forecasts the rent impact to be minimal and I tend to agree.
Affordability? Australia’s affordability problem is not primarily caused by investors buying established homes. It is caused by not enough homes being built where people need to live. Net overseas migration is forecast at 245,000 for 2026–27. Construction costs are rising again after easing from 2022 peaks. Vacancy rates are low. None of that is fixed by the negative gearing change. Treasury is projecting house price growth to come in around 2 per cent lower over the next couple of years as a result of these reforms, a moderation that could easily be offset by migration, supply constraints, or interest rate movements.
Family Home as Asset
Family home as asset. The primary place of residence is now arguably the most attractive asset class in the country. It is fully exempt from cgt, there is no cap on value and no limit on how many times you can upgrade. Plus all funds in the offset account enjoy the prevailing interest rate as savings- tax free. I see a renewed interest in family dwelling as wealth builder, more appetite to buy, renovate and upgrade, and more care taken on location.
Also in the Budget
It is worth noting the supporting measures, aimed at shaping the supply side:
- A $2 billion Local Infrastructure Fund to connect water, power, sewerage and roads for up to 65,000 new homes, bringing total housing infrastructure spend to $6.3 billion.
- $500 million to streamline environmental approvals, including an AI tool for developers to fast-track environmental assessments.
- The ban on foreign buyers purchasing established homes extended to mid-2029.
- $60 million over four years to subsidise community housing access for Australians aged 19–24, the cohort most at risk of homelessness.
- $100 million from the Housing Australia Future Fund for First Nations housing in remote communities.
- A $250 Working Australians Tax Offset from 2027–28 for over 13 million workers.
- $63.8 billion in savings — the largest savings package on record.
- The $20,000 small business instant asset write-off made permanent.
These are sensible supply-side and household-support measures, but they work slowly. None of them will move housing affordability in the next 12 months.
Final Thoughts
The market is reshaping. Reshaping markets are where the best and worst buying decisions get made.
Reach out if you have any questions.
