How property investors are responding to the new negative gearing reforms

The Federal Government’s negative gearing and Capital Gains Tax (CGT) reforms mark a significant shift in how future property investments will be treated for tax purposes. For investors considering their next purchase, the changes may influence everything from the type of property they buy to how they assess cash flow and long-term returns. The reforms have now passed into law, so many investors are reassessing their property purchasing plans and strategies.

Parliament has passed the core reforms, though officials are still finalising some of the detailed implementation rules ahead of commencement. If you’re looking to buy an investment property down the track, here’s what you need to know about the reforms and how they change the playing field.

What is changing?

On 12 May, Treasurer Jim Chalmers handed down the Federal Budget, which included major changes to negative gearing and CGT rules.

From 1 July 2027:

• Negative gearing for residential property investments will apply only to new builds.
• The 50 per cent CGT discount will give way to cost base indexation and a 30 per cent minimum tax rate on capital gains.

Properties bought before the announcement (7:30pm AEST 12 May 2026) will keep their exemption from the negative gearing changes, and the CGT reforms will only apply to gains that accrue after 1 July 2027.

How have the reforms affected the market and investors?

Australia’s property market had already been cooling when the changes were announced, driven by a combination of cash rate hikes, housing affordability constraints, the Middle East conflict, and cost-of-living pressures.

But the Federal Budget reforms dampened the market even further. Auction clearance rates slipped to levels worse than during the pandemic, and investor confidence dropped.

One survey of more than 1,400 Australian investors found that more than 80% now see residential investment property as less attractive following the 2026 Federal Budget changes. Meanwhile, 51.5% said they plan to hold their existing investments and wait to see how the legislation evolves.

The survey offers a useful snapshot of investor sentiment, though it shouldn’t be taken as representative of every Australian property investor.

Key shifts in strategy

Since the announcement, some investors have shown early signs of reconsidering where and how they invest, although it’s too soon to say how the reforms will reshape the broader property market over the long term.

New builds could attract more attention

With negative gearing limited to new builds from 1 July 2027, some investors are pivoting towards newly constructed properties.

Data from property fund manager Oliver Hume shows the proportion of new-build sales to investors in Victoria has risen above 40 per cent for the first time since December 2024. Experts say investors will likely switch to new units or houses on the outer city fringes, while stock in middle-ring suburbs could drop, potentially pushing rents higher.

Holding or grandfathering existing assets

Investors with established properties bought before 12 May 2026 may choose to hold onto them. These properties are exempt from the negative gearing reforms, so their owners can keep the existing tax treatment that applies to grandfathered properties.

These investors can keep negative gearing the property against their wage income and retain the full benefits until they sell.

Cash flow could become an even bigger consideration

Negative gearing has historically let investors offset losses on established investment properties against their taxable income. But under the changes, investors who buy established properties will no longer receive immediate tax relief on those losses.

The changes may prompt some investors to focus more heavily on rental yield, cash flow, and long-term returns when they assess investment opportunities. As a result, positively geared properties could become more attractive relative to investments that lean heavily on tax concessions to support returns.

Some may also look for properties that could transition to positive gearing over time as rental income grows.

What about the changes to SMSF borrowing?

Alongside the CGT and negative gearing reforms, new rules will govern self-managed super fund (SMSF) borrowing.

From 10 August 2026, SMSFs can no longer use Limited Recourse Borrowing Arrangements (LRBAs) to buy residential property. Existing LRBAs keep their grandfathered status.

SMSFs can still purchase residential property outright using cash, and trustees can still use LRBAs to acquire business real property.

The changes have drawn mixed reviews from investors, and some critics question whether they’ll make it harder for Australians to build retirement wealth. Some experts also believe the changes could increase the appeal of commercial property among SMSF investors. That said, SMSF property investment can involve complex lending, tax, and superannuation requirements, so specialist financial, legal, and tax advice matters more than ever.

Considering an investment property purchase?

The budget changes mean investors may need to think differently about the type of property they buy, its cash flow, and how it fits within their broader financial plans.

We can’t provide tax or financial advice, but we can help you understand the lending side of the equation.

We can review your borrowing capacity, compare suitable loan options, and help you understand how different property and loan scenarios could affect your repayments and overall finance structure.

If you’re considering your next investment property, get in touch! We can help you explore your finance options so you can make your next move with a clearer understanding.