Key takeaways
Strategic property investment still works through five wealth levers: capital growth, leverage, rental income, manufactured growth, and tax benefits. Negative gearing was always the last of these, not the first.
The price impact of the Budget will be modest overall – Treasury estimates around 2% less growth over a couple of years – but lower-priced apartments, townhouses and regional dwellings will feel more pressure than well-located established suburban properties.
The CGT change won’t always produce a worse outcome; if your property grows only modestly above inflation, indexation can actually be more favourable than the old 50% discount. Where it hurts is when your asset grows strongly in real terms.
Rushing into a new build or off-the-plan apartment purely for the tax concession is not a strategy. Builders already know the tax incentive is attached to new stock, and prices will reflect that quickly.
The right question to ask is not “what property gets me the best tax deductions?” but “what property still makes sense for my long-term plan under the new rules and can stand on its own merits before tax?”
Inner and middle-ring suburbs of major cities remain the strongest long-term proposition, where genuine demand drivers, owner-occupier competition and limited supply underpin values regardless of the tax settings in play.
Investors will need to be more selective, better capitalised and more strategic with their debt, with stronger financial buffers and a clear plan to hold properties comfortably without relying on a tax refund to cover annual costs.
The federal budget dropped last week and, if you believe the loudest voices in the room, property investment in Australia is finished.
I don’t buy that for a second, but I do think this changes the game enough that investors need to think more carefully than they have for years.
I’ve been watching governments tinker with property tax for five decades, so let me give you my take on this.
What actually changed
The good news for current property investors is that your existing holdings are grandfathered.
In addition to retaining the negative gearing benefit, your properties will also partially benefit from the 50 per cent CGT discount regime.
The 50% capital gains tax discount will be replaced, effective July 1 2027, with inflation-based indexation for assets held for more than 12 months, along with a 30% minimum tax on net capital gains.
Capital gains accrued before 1 July 2027 will retain the existing discount, and investors in new residential properties will be able to choose either the 50% discount or the new indexation policy.
There are no proposed changes for “new builds”, investments held in superannuation funds or commercial properties.
Remember, CGT is only payable when you sell, and our investment philosophy is long-term buy-and-hold, so the immediate impact is less significant than the headline suggests.
From 1 July 2027, negative gearing will be limited to new builds, while owners of existing investment properties held prior to the Budget announcement on 12 May 2026 will still be able to negatively gear their investments under a grandfathering approach, as will residential properties in self-managed super funds and commercial property.
Many people may be missing this key point: investors who buy established properties after 12 May 2026 can still deduct any losses against property income and carry forward any unused losses to future years.
Tip: This means negative gearing is a deferred benefit.
When your rental income exceeds your operating costs in the future, you’ll be able to offset those losses to reduce your tax liability then. They can also be used to offset any residential capital gain if the property is sold.
What you can’t do is deduct losses against other income in the tax year.
The price impact – modest, not catastrophic
Treasury estimates these changes will take a few percentage points off house price growth over a couple of years.
In practice, that means the median home might cost around $19,000 less than it otherwise would have, which sounds helpful for first home buyers until you realise rents are likely to rise in response, making it harder for aspiring buyers to save a deposit in the first place.
Of course, any reduction in property price growth will vary depending on the location and the local demographics.
The truth is this budget has tried to solve a housing affordability problem without properly addressing the underlying supply constraint.
Redirecting investors toward new builds may sound logical, but new builds cost substantially more to construct than equivalent established properties, and those costs flow through to both purchase prices and rents.
Note: The people who need rental accommodation don’t benefit from a policy that reduces the supply of affordable rental stock and pushes rents higher in the process.
The impact on prices won’t be uniform across the market.
Properties in segments where investors have been most active – lower-priced apartments, townhouses and regional dwellings – will feel more pressure than owner-occupier dominated markets in established middle and inner-ring suburbs. That is worth remembering when I come to the strategy implications below.
Don’t panic. But don’t rush either.
I’ve already seen the chorus of social media posts and emails telling investors to race in and buy a new build property before the July 2027 deadline, or to snap up an off-the-plan apartment to preserve negative gearing access.
I strongly recommend that you ignore most of that noise.
The government’s intention is to steer investors toward newly built properties, and that sounds tidy in theory, but in practice, the average price of a new investment property is substantially higher than an established one, and the rental returns don’t automatically follow the price tag.
Builders know there’s now a tax incentive attached to new stock, and prices will reflect that quickly.
Off-the-plan purchases in particular carry risks that don’t disappear just because the tax treatment is favourable – sunset clauses, construction delays, valuation gaps at settlement, and body corporate costs that erode returns are all still very real.
I’ve also seen investors rush into regional markets over the past few years, attracted by lower entry prices and higher yields.
Many of those decisions were driven more by tax optimisation than by genuine investment fundamentals. That approach is likely to become significantly more painful from here.
Here’s the key point: chasing tax benefits isn’t a wealth strategy.
I haven’t seen anyone retire on a self-funded basis without making the capital work for them.
Ultimately, the need to accumulate an asset base that is big enough to provide you with a passive residual income so that work is optional is always going to be there.
As a property investor, it will be important for you to ask yourself the right question.
The wrong question right now is, “what property gets me the best tax deductions?”
The right question is, “what property makes sense for my long-term plan under the new rules?”
Tip: A tax break can improve a good asset. It doesn’t rescue a bad one. That has always been true, and it’s more true now than ever.
The five levers still work
At Metropole, we’ve never built a client’s strategy around negative gearing.
We’ve always worked with five wealth levers: capital growth, leverage, rental income, manufactured growth, and tax benefits. Negative gearing sits in that last category, and it was always the supporting act, not the headline.
Capital growth remains the main game. The long-term increase in value of a quality asset in a well-located suburb is what builds your balance sheet. That dynamic hasn’t changed.
Note: The majority of your asset base when you retire will not be the rent you’ve received, or the money you’ve saved, or the tax benefits you’ve had, but the tax-free capital growth of your property.
Leverage still works too, though some investors will find their borrowing capacity is reduced because lenders will no longer factor in the tax benefit the way they did before.
That’s a planning problem, not a dead end, and it means the quality of what you buy matters more than ever. You simply can’t afford to make a mediocre purchase and hope tax savings paper over the cracks.
Maintaining strong financial buffers becomes even more critical in this environment because you’ll need to be comfortable holding a property through periods when cash flow doesn’t have a tax refund propping it up.
Rental income is actually likely to grow strongly in well-located areas if fewer investors come into the market.
Tightly held suburbs with genuine tenant demand and limited new supply will hold up well, and investors with properties already in those locations are in a stronger position than many people currently realise.
Manufactured growth – through renovation or strategic development – becomes an even more valuable tool in this environment, because it gives you control over your asset’s performance rather than waiting passively for the market to do the work.
At Metropole, this has always been a core part of how we help clients build equity faster than the market average, and that skill becomes more important when the tax tailwind is reduced. you can find out more about our property development management services here.
And tax benefits? They still exist.
Depreciation, capital works deductions, interest deductibility where it applies, repairs, and ownership structures all remain in play.
The budget didn’t eliminate property tax planning – it reshaped it.
How negative gearing applies across different ownership structures like trusts is still being worked through, and that’s where careful structuring will make a real difference for many investors. This is absolutely worth discussing with your advisor before making any decisions.
What this means for where you buy
I think the budget actually reinforces something I’ve been saying for a long time: buy investment-grade property in gentrifying, inner and middle-ring suburbs of major cities, where land values have strong long-term demand drivers, and where affluent owner-occupiers drive property price growth.
Regional and cheaper peripheral markets are more exposed here. A cohort of investors has been cycling through those markets primarily for tax reasons, and with that incentive reduced, both buyer demand and prices in some of those locations will soften.
I’d be cautious about buying in markets where the investment case has been driven more by yield and tax than by genuine location fundamentals.
The major cities, on the other hand, remain compelling. Australia’s biggest economic engines continue to attract population growth, employment, and demand for well-located housing.
When you look at comparable major cities internationally, premium land values have continued to grow regardless of the tax settings in place. That story doesn’t change because of a change to negative gearing rules.
What you should do right now
If you own established properties already, you’re grandfathered, and those assets may actually become more attractive over time as fewer investors compete for similar properties in future.
A portfolio review right now makes a lot of sense – to understand exactly what you hold, why it’s valuable, and how to position yourself for the next phase.
If you’re planning your next purchase, slow down and think clearly. Review your strategic property plan and ensure that it is appropriate for the current climate.
Then when looking at property, ask: can this property hold its value and generate reasonable rental income without relying heavily on a tax refund? Does it have genuine growth fundamentals? Is there an opportunity to add value through renovation or development?
If the answer to those questions is yes, the investment case may be so sound.
If the only compelling argument for a property is the tax deduction attached to it, that tells you everything you need to know.
Tip: The rules have changed, but the fundamentals of building wealth through property haven’t. Property investment still works, but only if the property itself works first.
Quality assets, sensible leverage, rising rents, and long-term compounding growth still work.
They worked before negative gearing existed in its current form, and they’ll continue to work now.
If you’d like to talk through how this budget affects your specific situation and what your next move should look like, the team at Metropole is here to help. Click here now and organise a chat with one of our wealth strategists.
