Federal Budget property changes and FAQ’s

I currently own a negatively geared investment property.  Does anything change for me?

The government has introduced negative gearing changes with “grandfathering” provisions. This means if you already own a negatively geared investment property, you can continue to claim those tax deductions until you sell.

On CGT, gains arising on a sale before 1 July 2027 are unaffected and will still receive the current 50% discount. Any capital gains arising from a sale that occurs after 1 July 2027 will be taxed on inflation-adjusted gains rather than automatically receiving a flat 50% discount. The inflation-adjusted gain is then taxed at the investor’s marginal rate, subject to a 30% minimum tax.

I’d like to buy an investment property.  What are my options?

• Established Properties: You can still buy them, but from 1 July 2027 you will no longer be able to deduct rental losses against your salary or other income.
• New Builds: These retain the tax advantages of negative gearing, and investors can choose either the 50% CGT discount or inflation indexation at the time of sale. This flexibility is not available to established property investors.

However, there are two risks worth understanding.

First, when you eventually sell, the next buyer is purchasing an established property and won’t receive the same tax treatment. This narrows your future buyer pool and is worth factoring into your purchase decision today.

Second, tax incentives alone do not guarantee a project is viable. Investors should satisfy themselves that any new build is in a location with genuine rental demand and that the numbers stack up independently of the tax benefits.

What is the definition of a new build?

A “new build” is generally defined as a residential dwelling that has not been previously sold or occupied as a residence. This includes off-the-plan apartments, new house-and-land packages, and newly completed units.

To qualify, the property must be sold for the first time as residential premises and cannot have been previously occupied for more than 12 months and is still owned by the builder or developer.

Where an existing property is demolished, it only qualifies as a new build if it is replaced by a greater number of dwellings. For example, knocking down one house to build two or more townhouses.

I’m a tenant.  Should I be worried that rents will go up?

As a tenant, the main risk is a tightening supply of established rental properties over time. Of 2.9 million households currently renting, 83% rent from private investors, so changes to investor behaviour directly affect rental availability.

Because negative gearing is grandfathered, it is unlikely we will see a sudden mass exodus of investors selling their properties. The more significant question is where future rental investment will go. New properties are generally more expensive to rent than established ones, and new investor stock is likely to concentrate in outer growth corridors and apartment precincts. This risks creating a location mismatch between supply and demand, particularly for those who depend on proximity to employment, schools, hospitals and transport.

The short-term risk is modest given grandfathering. The longer-term risk depends on how much new rental supply actually gets built, and where.

I am a first home buyer.  Will this actually help me buy a home?

First home buyers will directly benefit from less investor competition, but grandfathering provisions may mean that fewer investors will sell their properties. The net impact on prices is uncertain as the effect will vary significantly by market.

In practice, relief is more likely in outer growth corridors where new supply is being built. Those seeking established homes in inner and middle-ring suburbs may see less change in competition than expected.

This policy alone will not solve affordability. The underlying shortage of housing in the places people want to live remains, and that is what ultimately drives prices.

What do the housing policy changes mean for the market overall?

The intended consequence of these changes is to soften price growth by shifting investor activity toward new builds. The idea is that established properties will pass from investors to owner-occupiers over time, but what remains uncertain is how long this will take.

Will the family home be more valuable given its tax-exempt status just became more special?

Will more first-home buyers step up to replace investors in the established market, or will investors hang on to their properties longer because of grandfathering? Will renters be able to afford the higher rents that new builds demand?

These are the big questions that we will be answering in the weeks and months ahead.

Related Reading:

• Learn more about the latest property market trends in Caloundra Real Estate Market Insights
• Explore current property listings with Ray White Caloundra Properties for Sale
• Read the official Federal Budget announcements from Australian Treasury
• View current interest rate information from the Reserve Bank of Australia (RBA)