Key takeaways
Recent tax changes have made property investment less attractive, particularly for investors buying established homes after Budget night.
Tax settings affect cash flow and after-tax returns, but they do not remove the underlying demand for well-located housing.
Australia’s growing population, housing shortage and constrained construction sector continue to support property values and rents over the long term.
Leverage, rental income and inflation’s effect on debt all contribute to property’s investment performance.
The widening gap between investment-grade property and secondary assets means selection will become even more important.
Spend a little time on social media, and you will quickly come across people suggesting that property is no longer a worthwhile investment.
That argument has grown louder since the Federal Government announced major changes to negative gearing and capital gains tax in the 2026 Budget.
From 1 July 2027, negative gearing on residential property will generally be limited to new builds, although properties held before the Budget announcement will be grandfathered.
At the same time, the 50% capital gains tax discount will be replaced by an inflation-based system, under which a minimum tax rate of 30% will apply to real capital gains accruing from 1 July 2027.
There is no doubt these changes will alter the numbers for many investors.
Some established properties will become more expensive to hold, and higher-income investors will lose the ability to offset rental losses against their salary or business income when purchasing an established property after the Budget announcement. Of course, they don't lose the benefits of the tax deductions; they are just deferred.
But does that mean residential property can no longer be considered an investment?
In my mind, that conclusion confuses a less favourable tax environment with a poor underlying investment.
They are two very different things.
Tax changes affect returns, but they do not change housing demand
Governments can change taxation rules, lending regulations and tenancy legislation, and all of these influence investor behaviour.
However, tax policy doesn’t remove people’s need for somewhere to live.
Australia’s population has now topped 28 million, and last year net overseas migration added around 301,000 people, with most new arrivals settling in our major capital cities, where employment, education and established communities are concentrated.
At the same time, Australia continues to build fewer homes than it needs.
The National Housing Supply and Affordability Council estimates that about 980,000 new homes could be delivered over the five-year National Housing Accord period, leaving the country well short of the original 1.2 million target.
Planning delays, labour shortages, high construction costs, infrastructure constraints and builder insolvencies continue to constrain the industry’s ability to respond quickly.
These are structural problems that will take many years to resolve.
So while tax changes may discourage some investors, the number of households requiring accommodation will keep growing.
In fact, discouraging private investors without replacing the rental homes they provide will make rental conditions even tighter.
Property returns involve more than price growth
Another problem with the social media argument is that it tends to focus on one number, usually the change in the property’s price.
A property investment delivers a combination of capital growth and rental income, while the investor also benefits from leverage.
Most investors don’t pay cash for a property. They contribute a deposit and borrow the balance, which allows them to control a much larger asset.
If an investor contributes $200,000 towards a $1 million property and the property eventually increases in value by 20%, the gross capital gain is $200,000 – a 100% return on their money.
Of course, acquisition costs, interest, tax and holding expenses must be taken into account, and leverage magnifies losses as well as gains.
However, this ability to control a substantial asset with a comparatively small amount of personal capital remains one of property’s defining investment characteristics.
Over time, rental income also helps cover the costs of holding the asset, and if the property has been selected correctly, rents should rise as household incomes and housing demand increase.
Another factor property pessimists often overlook is that inflation gradually reduces the real value of debt.
The nominal amount borrowed doesn’t increase with inflation, even though wages, rents and the replacement cost of property generally rise over time.
This doesn’t make the mortgage disappear, and investors must still be able to service it, but a fixed amount of debt normally becomes less burdensome in real terms over a long holding period.
- Also read:This week’s Australian Property Market Update – Latest Data, State by State October 27th 2026
- Also read:Latest Property Price Forecasts. Australian Property Market Outlook 2026-2027: Navigating a Market Correction
- Also read:Brisbane Property Market Forecast [2026 & Beyond] – What The Olympics Decade Means for Investors.
- Also read:Melbourne property market forecast for 2026 & 2027 | Separating the fundamentals from the sentiment
- Also read:Sydney property market forecast for 2026 and 2027 | Why the short-term softness is a long-term opportunity
Property is not one market
Saying “property is no longer a good investment” also assumes that every property will perform in roughly the same way.
That has never been true, and I believe the new tax environment will widen the gap between investment-grade property and other properties.
A poorly located apartment in an oversupplied precinct, a house in an area with limited employment growth or a cheaply constructed property on the outskirts of a regional town may deliver disappointing results.
The same applies to many new properties created primarily to satisfy an investor market.
The Government wants to redirect investors towards new builds, but investors should remain cautious about letting a tax concession dictate what they buy.
A tax benefit can’t compensate for an inflated purchase price, poor design, oversupply at the location, or limited owner-occupier appeal.
Now this poses a genuine dilemma for investors. New property may receive more favourable tax treatment, while an established investment-grade property could offer better long-term growth prospects.
The appropriate decision will depend on the investor’s income, cash flow, borrowing capacity, time horizon and overall portfolio strategy.
Could the tax changes create opportunities?
The contrarian view is that the new rules may create opportunities for patient investors.
If some buyers leave the established property market because they can no longer claim immediate tax deductions, competition for select properties could temporarily ease.
Investors with strong cash flow who can carry forward their rental losses may find themselves negotiating in a less crowded market.
At the same time, fewer investors buying established properties could reduce the growth of the private rental pool.
That would further pressure rents, particularly in areas with low vacancy rates and strong population growth.
Treasury expects the rental impact of the reforms to be small, but such forecasts rely on assumptions about how investors, tenants and builders will respond.
In my view, supply is far less responsive than the modelling often assumes. A reduction in investor activity can occur quickly, while planning and constructing replacement dwellings takes years.
Property remains a long-term investment
Australian residential property will continue to be an excellent long-term investment for those who buy the right property and hold it through the cycle.
Its underlying fundamentals remain intact.
Our population is growing, household numbers are increasing, construction is constrained and most Australians want to live in a relatively small number of desirable locations close to employment, education, transport and lifestyle amenities.
However, property investment will require more careful planning under the new rules.
Cash flow buffers will become increasingly important, asset selection will matter even more, and investors will need advice that considers property strategy, finance, tax, ownership structures and estate planning together.
The days when an investor could buy almost anything and rely on a generous tax environment to support the decision are fading.
That may ultimately create a healthier market in which investors focus more closely on the quality of the underlying asset.
Property has not stopped being an investment because the tax rules have changed.
It has simply become an investment that demands better strategy, stronger financial foundations and a much more selective approach.
What about you?
Of course, the new tax rules will affect every investor differently, depending on their income, existing portfolio, borrowing capacity, ownership structures and long-term goals.
That is why now is the time to review your strategy rather than make decisions based on social media commentary or broad market predictions.
If you would like to understand how these changes could affect your personal situation, book a Wealth Discovery Chat with a Metropole Wealth Strategist by clicking here. We will review where you are today, where you want to be and the steps you may need to take to safely grow, protect and pass on your wealth.
