On 12 May 2026, the Federal Government handed down the 2026–27 Budget, introducing a number of proposed reforms and initiatives that could significantly influence the property market in the years ahead.
From changes to negative gearing and capital gains tax through to new housing supply incentives, the Budget signals a continued push toward improving affordability and increasing housing stock across the country.
While these measures are still proposed and yet to be legislated, they have already sparked widespread discussion across the property industry. Here’s what investors need to know.
Proposed changes to negative gearing
Existing Investment Properties
For properties owned prior to Budget night, there are currently no proposed changes. Existing investment properties will effectively be grandfathered, meaning investors can continue claiming negative gearing benefits under the current rules.
Established Properties Purchased After Budget Night
Under the proposed changes, investors purchasing established properties after Budget night would no longer be able to claim rental losses against their personal income or salary (after the 1st July 2027).
Instead, any losses would be carried forward and applied against future rental income or future capital gains when the property is eventually sold.
New Builds
Newly built properties would continue to qualify for negative gearing benefits under the proposed system. The intention is to encourage investment into new housing supply and construction activity.
Proposed changes to Capital Gains Tax (CGT)
Established Properties
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- For established properties purchased and sold prior to 1 July 2027, there would be no changes to the current CGT arrangements.
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However, established properties purchased after 1 July 2027 are proposed to move to a CPI-based indexation method rather than the current 50% CGT discount model (if a property is owned for over 12 months).
For investors who already own established property prior to 1 July 2027 and sell after that date, a transitional arrangement is proposed:
- Gains accrued before 1 July 2027 would continue to receive the current CGT treatment, including the 50% discount where applicable
- Gains accrued after 1 July 2027 would be calculated under the new indexed methodology (CPI-based)
In simple terms, the property’s value at 1 July 2027 would become the new cost base for calculating future gains under the updated system.
New Properties
For newly built properties, investors are expected to retain access to the current 50% CGT discount or alternatively opt into the new indexation methodology.
- For established properties purchased and sold prior to 1 July 2027, there would be no changes to the current CGT arrangements.
Our Key Takeaways
These Changes Have Not Yet Been Legislated
Firstly and importantly, these changes are still proposals only.
They will need to pass through the Senate and there is still potential for amendments or revisions before becoming law.
For that reason, we strongly encourage investors not to make any rushed or emotional decisions based solely on the initial announcements. Every investor’s financial position, borrowing capacity and long-term goals are different, so it is important to seek tailored advice from your accountant, mortgage broker and financial adviser before making any major decisions.
The fundamentals of property haven’t changed
Despite the headlines, the underlying supply and demand fundamentals across Australia remain largely unchanged.
Australia is still facing a significant housing shortage and in many markets, housing supply continues to lag well behind population growth and demand.
Construction costs also remain elevated, with recent increases in oil prices likely to place additional pressure on building and development costs in the short term.
At PMC, we have never recommended residential property purely for its tax benefits. Our primary objective has always been securing quality assets with strong long-term capital growth potential. Tax benefits should be viewed as an added advantage, not the core reason for investing in property.
Tax benefits still exist for established property
Although the proposed rules would prevent investors from offsetting rental losses against personal income for established properties purchased after 1 July 2027, those losses are not disappearing entirely.
Investors would still be able to apply losses against future rental income or future capital gains.
This means cash flow management becomes increasingly important moving forward. Investors will need to carefully consider:
- Their ability to service any shortfall on the property
- The impact on borrowing capacity
- Interest rate sensitivity
- Loan structure and overall portfolio strategy
We encourage investors to speak with their mortgage broker, accountant and financial advisor to better understand how these proposed changes could affect their borrowing position and investment plans.
How we are adjusting our investment strategies
1. Established Properties with Stronger Yields
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One adjustment will be a stronger focus on established properties with:
- Higher rental yields
- Lower entry price points
- Reduced negative cash flow exposure
This approach can help improve holding costs while still targeting locations with strong long-term growth fundamentals.
For investors with available capital, contributing a larger deposit to reduce loan-to-value ratios (LVRs) may also help move properties closer to cash flow neutrality.
- 2. Selective New Property Opportunities
- New property will become increasingly attractive due to continued access to:
- Negative gearing benefits
- Full depreciation benefits
- CGT concessions
However, we believe investors should approach new property extremely carefully.
We anticipate significant marketing activity from project marketers and large developers promoting the following type of new product which we certainly don’t endorse:
- House and land packages in outer growth corridors
- Medium and high-density apartment projects
- Large townhouse developments
Not all new property is created equal and selecting the right asset in the right location will be critical.
- Our Criteria for New Property Investments
We only consider new properties that meet strict investment fundamentals, including:
- Inner and middle-ring locations within our Capital Cities and Major Regional markets
- Close proximity to employment hubs, education, transport and amenity
- Quality builders and developers with strong track records
- In areas with high owner-occupier percentages
- Property types with owner occupier appeal
It is also important to understand that once a property has been purchased and settled, it is no longer considered “new” for future investors. This means future buyers will primarily be owner occupiers rather than investors chasing tax incentives.
As a result, securing property in locations with strong owner-occupier demand becomes even more important.
- 3. Commercial Property for Select Investors
- For some investors, commercial property may become a more attractive option due to generally stronger cash flow performance compared to residential assets.
However, commercial property also comes with its own set of risks and considerations, including:
- Lower LVRs offered by banks
- Higher vacancy risk
- Potential tenant quality concerns at lower price points
- Longer leasing periods and vacancy downtime
Commercial property should always be assessed carefully alongside professional financial advice and aligned with an investor’s broader risk profile and goals.
Final Thoughts
While the proposed Budget changes may alter some of the tax settings around property investment, the broader fundamentals driving the Australian property market remain firmly in place.
Long-term investing principles have not changed. Asset selection, location quality, cash flow management and strategic planning will continue to be the key drivers of successful property investment outcomes.
Most importantly, investors should avoid making reactive decisions based purely on headlines. The proposed reforms are still subject to legislative approval and there may be further amendments before any changes take effect.
If you would like to discuss how these proposed changes may impact your investment strategy, borrowing capacity or future property plans, the PMC team would be happy to assist.